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Speaker 2: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside

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Speaker 2: my co host Matt Miller.

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Speaker 1: Every business day we bring you interviews from CEOs, market pros,

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Speaker 1: and Bloomberg experts, along with essential market moven News.

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Speaker 2: Find the Bloomberg Markets podcast called Apple Podcasts or wherever

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Speaker 2: you listen to podcasts, and at Bloomberg dot com slash podcast.

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Speaker 2: There's a lot going on Souper to Washington. We've been

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Speaker 2: totally ripping up this screw. As Tom Keenan would say,

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Speaker 2: Joe Matthew He is our go to voice for Bloomberg

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Speaker 2: Radio and television down in Washington, DC. He joins US,

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Speaker 2: as does Mick mulroy, co founder of the Lobo Institute

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Speaker 2: and former Deputy Assistant Secretary of Defense for the Middle

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Speaker 2: East at the US Department of Defense. Former US Marine

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Speaker 2: Infantry officer for sixteen years. We thank him, of course

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Speaker 2: for his service. Joe, let's start with you, McCarthy. What

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Speaker 2: do you make of it? I know you're gonna tell

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Speaker 2: me that you guys down in DC were expecting it.

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Speaker 2: Simone and I totally were not yet by surprise. So

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Speaker 2: what does it mean.

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Speaker 3: I won't go that far. Okay, I do, by the way,

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Speaker 3: I'm bouncing back if we can fix that. But I

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Speaker 3: know it's got to be a heck of a day

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Speaker 3: if you call me twice, yes, in one day. But yet, Look,

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Speaker 3: there were questions about what he was going to do

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Speaker 3: because he had not announced his plans for re election,

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Speaker 3: and so a little bit difficult. Sorry about that. It's

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Speaker 3: so yeah, not a massive shocker knowing he had not

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Speaker 3: announced his plans. Thank you for that, But the timing

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Speaker 3: is what blew me away. Gone by the end of

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Speaker 3: the year. That's a lot different than saying you're not

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Speaker 3: going to run for reelection, and following yesterday's news, Patrick McHenry,

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Speaker 3: the Chair of the Financial Services Committee, who was acting Speaker,

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Speaker 3: Remember he was slamming the gavel and anger just a

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Speaker 3: couple of months ago, or I guess it was weeks

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Speaker 3: at this point, he just announced that he's leaving the

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Speaker 3: House as well. So you put these two together and

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Speaker 3: it's two major retirement slash resignations for the Republican conference

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Speaker 3: in the House, and it tells us a lot about

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Speaker 3: the chaos that we've been seeing.

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Speaker 4: Nick, does this have any impact on the overall discussions

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Speaker 4: that we expect to see happen and negotiations we expect

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Speaker 4: to see happen both around Ukraine AID as well as

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Speaker 4: AID for Israel.

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Speaker 5: Yes, I think it does. Actually, I think a lot

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Speaker 5: of the people that are retiring are people that at

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Speaker 5: least initially were very supportive of Ukraine AID in the

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Speaker 5: role that the United States has played in getting the

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Speaker 5: world together to get behind them. So as you see

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Speaker 5: these individuals get replaced, the concern will be that they're

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Speaker 5: going to be more inclined with I guess the far

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Speaker 5: right of the Republican Party that now sees this as

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Speaker 5: something that we shouldn't be doing. I obviously would disagree

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Speaker 5: with that, but I think these shifts may have an impact.

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Speaker 5: You're already seeing it, and you're also seeing and I've

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Speaker 5: been up there to brief many fence sitters, if you will,

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Speaker 5: you're also seeing them say that as we get closer

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Speaker 5: to the election that this is going to be even

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Speaker 5: harder to pass this one hundred plus billion dollars in

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Speaker 5: support to Ukraine. So the quicker we can do this,

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Speaker 5: the better, and before a lot of these individuals are replaced,

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Speaker 5: is also a good thing.

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Speaker 2: Hey, Mick, we're still waiting comments from President Biden about

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Speaker 2: the funding including Ukraine. Give us your updated view of

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Speaker 2: how critical additional funding for Ukraine is because it's, quite

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Speaker 2: frankly and unfortunately for them, the events in Israel have

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Speaker 2: kind of taken Ukraine off the front page. Just give

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Speaker 2: us an update from your perspective.

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Speaker 6: That's a good point.

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Speaker 5: I haven't talked about Ukraine in over a month, so

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Speaker 5: that should say something.

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Speaker 6: I do think.

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Speaker 5: You know, we have to remember this is somewhat of

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Speaker 5: a David and Goliath type scenario. We forgot that. But

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Speaker 5: if you go back to the beginning of when what's

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Speaker 5: Russian invaded. Everybody expected this to be over in weeks

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Speaker 5: and keep to fall and everything. Look where we are now,

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Speaker 5: where it's a counter offensive, counter offensive for the Ukrainians. Yes,

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Speaker 5: it has stalled. Yes it's very difficult, but it's an

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Speaker 5: entirely different situation. And part of that is because of

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Speaker 5: the support that's come to them from Europe and from

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Speaker 5: the United States, with the United States being the leader

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Speaker 5: in that. If we failed to support them this one

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Speaker 5: hundred billion plus dollars, they're going to be in a

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Speaker 5: serious situation. This is largely a war of attrition. Now

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Speaker 5: it's in inches, but Ukraine is on the offense and

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Speaker 5: it really needs the munitions to be able to take

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Speaker 5: on and go into the defenses that Russians have built

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Speaker 5: over many many months before this counter offensive start. If

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Speaker 5: we pull out now, that is a big problem for

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Speaker 5: the Ukrainians. Could this could then start, the type could

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Speaker 5: start turning and we could see the Russians start gaining ground.

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Speaker 2: Boy, all right, here's just a quote today from President

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Speaker 2: of Zelenski of Ukraine. Quote. We have a realistic action

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Speaker 2: strategy and it is our efforts with your support, that

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Speaker 2: can ensure Ukraine's success on the ground. Zelenski said in

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Speaker 2: a speech to G seven leaders, including President Joe Biden,

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Speaker 2: during a virtual meeting Wednesday.

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Speaker 4: Yeah, Joe, what's your sense of how much political support

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Speaker 4: that can be a drawn up for Ukraine? Because it

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Speaker 4: does seem like when you you know, if you look

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Speaker 4: across the majorities of these two chambers, you know probably

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Speaker 4: if you could just put the resolution on the floor,

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Speaker 4: they'd get passed. But you know who can be pulled

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Speaker 4: on the fence.

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Speaker 3: What you just said is correct. If you put Ukraine

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Speaker 3: funding on the floor of the House, we already saw

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Speaker 3: it happen with standalone Israel funding, it would pass, and

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Speaker 3: it would pass with bipartisan support. The question is procedure

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Speaker 3: in this case and exactly what the Speaker of the

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Speaker 3: House can get away with with a actured conference. Look,

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Speaker 3: Kevin McCarthy just left for a reason. Mike Johnson has

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Speaker 3: to figure out a way around this. Here he says

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Speaker 3: that he supports getting this done, he does not want

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Speaker 3: to do it, by the way, all in one pop.

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Speaker 3: This more than one hundred billion dollar request that President

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Speaker 3: Biden made. He wants to have bills on Israel, Ukraine,

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Speaker 3: Taiwan separately on the floor, and he wants Ukraine tied

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Speaker 3: to border funding, border security changes in asylum law, something

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Speaker 3: that has eluded lawmakers for decades. The prospect of getting

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Speaker 3: that done in the next couple of weeks is not

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Speaker 3: looking really great, which is why it's likely this is

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Speaker 3: going to turn into something next year. The White House

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Speaker 3: says they're out of time, they're out of money. But

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Speaker 3: until this can be taken care of on the border,

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Speaker 3: something that Republicans and Democrats can swallow, it's not likely

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Speaker 3: going to happen.

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Speaker 2: Hey, Mick, you know, probably a week or so ago,

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Speaker 2: we spoke with the Admiral Strevetis, former head of NATO,

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Speaker 2: and he made a point. He had just returned from

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Speaker 2: a trip to South Korea, and he felt like, what's

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Speaker 2: gonna What probably and is likely to happen in Ukraine

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Speaker 2: is some type of trade land for peace, much like

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Speaker 2: it happened in Korea. Is that a scenario now that

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Speaker 2: it appears that it's become more of a kind of

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Speaker 2: drawn out situation here militarily.

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Speaker 5: Yes, I think the Admiral is right. I think that

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Speaker 5: is something that will be looked at and probably is

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Speaker 5: already being looked at, But ultimately it's going to be

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Speaker 5: up the Ukrainian people. President Zelinski said he's going to

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Speaker 5: need a referendum when it comes to giving any land away,

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Speaker 5: but there needs to be something in return, and I

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Speaker 5: think that will be of course peace, but also potentially

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Speaker 5: NATO membership. If I was in their shoes, I wouldn't

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Speaker 5: want to give any territory away unless I had absolute

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Speaker 5: assurances security wise that this wasn't going to happen again.

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Speaker 5: And one way to do that is to get into NATO,

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Speaker 5: which of course then gives them the Article five protection

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Speaker 5: if they're ever attacked again. So I don't know where

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Speaker 5: that stands right now, but I know that those discussions

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Speaker 5: are ongoing. And as this to your point of your question,

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Speaker 5: as this goes into this kind of stalemate, it's going

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Speaker 5: to be more and more likely because the stalemate means

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Speaker 5: nobody's really gaining a lot, doesn't mean people aren't dying.

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Speaker 5: So it is it is still incumbent on both sides

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Speaker 5: to look at what they can do to end this

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Speaker 5: in a way that's at least acceptable to both both countries.

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Speaker 4: Are the Ukrainians optimistic that at any point that there

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Speaker 4: can be a sort of breakthrough, an end to the stalemate.

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Speaker 4: I know that, you know, throughout the spring, in the summer,

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Speaker 4: you know, there were moments where they said yes in

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Speaker 4: the next couple of weeks. But has that kind of

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Speaker 4: optimism's gone away?

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Speaker 5: So I don't think the optimism has gone away from

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Speaker 5: the Ukrainian people. I think they're in it to the end.

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Speaker 5: You know, there was just one story that was out

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Speaker 5: there about the Ukrainian soldier that called in all of

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Speaker 5: the artillier on his own position because it was about

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Speaker 5: to be overrun, and of course killed all the Russian

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Speaker 5: troops that were about to overrun his positions. But that

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Speaker 5: those kind of things really indicate to me is somebody

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Speaker 5: spent a lot of time in conflicts. People that do

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Speaker 5: that don't generally lose wars. They'll go to the end.

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Speaker 5: And I think that's what really is that kind of

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Speaker 5: power that the Ukrainian people have. They are tenacious and

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Speaker 5: they're never going to give up. And Russian people, I

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Speaker 5: think realize that they've lost so many They've lost more

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Speaker 5: people in this conflict that we lost in Vietnam if

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Speaker 5: you think about the time difference in that. So this

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Speaker 5: is something that I think really is that factor that

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Speaker 5: you can't duplicate, you can't buy. It's ingrained in the

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Speaker 5: Ukrainian people to keep fighting. I do think once the

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Speaker 5: summer hits again, in all the weapons systems that we've provided,

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Speaker 5: and a lot of the advanced ones that we're training

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Speaker 5: them on now, like the F sixteen, they will start

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Speaker 5: gaining some terrain. So Russia is going to be very

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Speaker 5: concerned when all that comes together and there's a and

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Speaker 5: they really start pushing in the spring.

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Speaker 4: Can we shift to the conflict in the Middle East? Now?

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Speaker 4: Israel appearing to draw some criticism, increasing criticism, I would

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Speaker 4: say from the Biden administration. We saw some restrictions on

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Speaker 4: v is first, really settlers involved in violence in the

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Speaker 4: West Bank come into play yesterday. How much of a

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Speaker 4: divide is how much criticism truly is the Biden administration

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Speaker 4: placing on Israel? And you know, is it truly intensifying

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Speaker 4: or are these just little bits and pieces that we see.

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Speaker 5: So I do think it's intestifying. I think at first

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Speaker 5: and still today, the United States is the most significant

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Speaker 5: partner to Israel. And I think any country that was

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Speaker 5: attacked like they were on October seventh, what have as

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Speaker 5: their objective to destroy the entity that did that in

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Speaker 5: this case Hamas so militarily degrade them to a point

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Speaker 5: where they're not combat effected. But the way they went

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Speaker 5: about it, especially in the shaping part of this operation,

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Speaker 5: the shaping phase where it was significant bombing in areas

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Speaker 5: to essentially destroy tunnels, but there are in urban areas

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Speaker 5: brought down the multiple buildings at the same time. That's

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Speaker 5: why we're seeing this level of civilian casualties at the

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Speaker 5: fifteen thy sixteen thousand. Now, I think at first that

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Speaker 5: was all said behind the scenes. Now you're seeing more

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Speaker 5: and more public statements that they expect Israel to shift

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Speaker 5: tactics so they can reduce the amount of civilian casualties

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Speaker 5: because this is just not acceptable in their view in

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Speaker 5: many military analysis view, but also a need to address

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Speaker 5: the humanitarian catastrophe that's happening right now because they can't

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Speaker 5: get enough humanitarian aid into gods. So I think you'll

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Speaker 5: see the United States, of course stick with our partner

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Speaker 5: in Israel, and they're objective, but also really push them

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Speaker 5: to do in a manner that doesn't completely alienate them

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Speaker 5: from the rest of the world and make our job

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Speaker 5: in supporting them more difficult.

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Speaker 2: So I mean in terms of that objective which was

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Speaker 2: originally stated by Israel, complete annihilation of Hamas, Is that,

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Speaker 2: even in practicality possible? I mean, how do you eradicate

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Speaker 2: a terrorist organization. It's not like, you know, defeating an

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Speaker 2: army of a state. So does that need to be rethought.

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Speaker 5: Yes, especially if you put it as eliminate Hamas. Right,

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Speaker 5: So we know at the CIA, I spent twenty years there,

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Speaker 5: all my colleagues, all the military, we spent twenty years

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Speaker 5: trying to defeat al Qaeda in its offshoots. Right, you

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Speaker 5: can't defeat philosophy. In fact, oftentimes if you're heavy handed,

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Speaker 5: you create more of the problem what they're trying to do.

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Speaker 5: And I think when you get into talking to the

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Speaker 5: idea of seniors, which I do, they're trying to destroy

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Speaker 5: their military capacity. They realize the philosophy itself is not

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Speaker 5: something that can be destroyed, but to reduce their weapons stashes.

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Speaker 5: They're especially precision guided, their soldiers, their leadership, Capture their

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Speaker 5: leadership and destroy these tunnels, which gives them a lot

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Speaker 5: of military advantages. That's what they're really trying to do.

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Speaker 5: I don't think anybody there thinks that they're going to

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Speaker 5: destroy the eye biology and that either HAMAS or something

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Speaker 5: like AMAS isn't going to continue. They just want to

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Speaker 5: reduce the threat to it's manageable. And then the question

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Speaker 5: is going to be what comes next, because if the

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Speaker 5: international community doesn't come up with some kind of security

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Speaker 5: and stabilization force that's acceptable to both, then the IDF

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Speaker 5: is going to stay there long term, and that's going

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Speaker 5: to be a lot of international pressure to change that.

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Speaker 2: All right, Nick, thanks so much for joining us. Mick mulroy,

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Speaker 2: he is co founder of the Lobo Institute. He's absolutely

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Speaker 2: our go to voice on so many of these geopolitical

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Speaker 2: issues given his experience at the US Department of Defense, CIA,

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Speaker 2: the United States Marine Corps. I mean, the guy's done everything,

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Speaker 2: so we really appreciate getting a few minutes of his time.

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Speaker 7: You're listening to the team. Ken's our live program Bloomberg

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Speaker 7: Markets weekdays at ten am Eastern on Bloomberg dot Com,

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Speaker 7: the iHeartRadio app and the Bloomberg Business App, or listen

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Speaker 7: on demand wherever you get your podcasts.

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Speaker 2: So let's get back to the discussion of the banks here.

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Speaker 2: Chris Whalen is at Whaling Global Advisors. He knows a

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Speaker 2: thing or two about these banks. Chris, let's just start

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Speaker 2: with the testimony down to Washington, DC. What are in

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Speaker 2: the banks really want as it relates to this latest

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Speaker 2: round of potential regulation.

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Speaker 6: I think they want to kill it, delay it, and

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Speaker 6: force the FED and the other regulators to do their homework.

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Speaker 6: You know, as Jamie Diamond eluded and several others eluded

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Speaker 6: Senator Kennedy. There's no prior art this analytical framework that's

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Speaker 6: in this rule. They didn't do the work, and this

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Speaker 6: breaks the process that we've had with BOSEL going back

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Speaker 6: twenty years and more. It says, you know, we're going

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Speaker 6: to test it, we're going to argue about it, we're

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Speaker 6: going to publish it so we can see all the work,

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Speaker 6: and then we're going to adopt it. They're not doing that.

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Speaker 6: And this is part and parcela what you see throughout

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Speaker 6: the Biden administration in many areas like housing, where I

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Speaker 6: spend most my time, where they come up with these

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Speaker 6: crazy ideas that are clearly unworkable, but they're doing it

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Speaker 6: for political reasons. You know, for example, they want lenders

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Speaker 6: to use two different credit scores now for lending. It's

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Speaker 6: arithmetically impossible, and so the FHFA, which regulates Fanny and

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Speaker 6: Fanny told them the average to two scores, which is crazy.

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Speaker 6: But that's what we're dealing with now. So you guys

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Speaker 6: at Bloomberg understand what's involved when you start mucking around

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Speaker 6: with credit scores in the world of Shakestea income, that's

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Speaker 6: not a trivial thing. But the Biden people are going

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Speaker 6: for it because they want talking points. You can see

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Speaker 6: that Cherick Brown is having a tough time politically. Yeah,

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Speaker 6: you spent five minutes talking about the TV ads about

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Speaker 6: bossl do you imagine, right?

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Speaker 7: Exactly?

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Speaker 2: So all right, we're waiting. That is, we're waiting for

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Speaker 2: President Biden. He's going to be scheduled to make some

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Speaker 2: comments shortly on and the apackage to Ukraine when that

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Speaker 2: and when he does come, we will bring this to you.

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Speaker 4: You know, you were talking, Chris about sort of the

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Speaker 4: unworkability of some of these proposals, but you know, haven't

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Speaker 4: we seen European regulators do something quite similar. Where are

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Speaker 4: the differences here and where is there potent potentially room

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Speaker 4: for a compromise between the banks themselves and between regulators.

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Speaker 6: Well, the European situations Timona is very different because you

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Speaker 6: don't have middle market banking in Europe. The governments take

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Speaker 6: all that business. So the big banks basically are banking

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Speaker 6: larger corporations, government entities, and then they go offshore and

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Speaker 6: they compete with city for example, you know, the markets.

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Speaker 6: So their approach to things like housing is they don't

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Speaker 6: like housing. They don't like the idea of single family homes.

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Speaker 6: So the Bossil rule from years ago reflects the US

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Speaker 6: missed that one and it was unfortunate. Now they're going

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Speaker 6: after it even more, things like mortgage servicing rights. I

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Speaker 6: don't think the two perspectives are really compatible at the

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Speaker 6: end of the day. The Europeans treat business, treat banks

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Speaker 6: as second class citizens, and they don't even think about,

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Speaker 6: you know, starting new banks and that sort of thing.

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Speaker 6: In the US, our bond market has been our strength,

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Speaker 6: the fact that we have private credit markets, and you know,

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Speaker 6: our banks still are very important players in that, but

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Speaker 6: they're much less involved. You know, I doubt many people

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Speaker 6: on the Senate Banking Committee realize that eighty percent of

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Speaker 6: all residential mortgages today are underwritten and serviced by non banks.

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Speaker 2: The you know, that's that Cinneria I wanted to go

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Speaker 2: to private credit. It's now a one point five trillion

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Speaker 2: dollar business that kind of sprang up right after the

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Speaker 2: Great Financial Crisis. Now, the concerns seemed to be when

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Speaker 2: people are getting concerned about the lack of transparency, the

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Speaker 2: lack of regulation from that market. Can you give us

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Speaker 2: your thoughts there?

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Speaker 6: Yeah, Jamie Diamond and the other witnesses alluded to this,

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Speaker 6: which is at more than half of the private credit

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Speaker 6: market is now conducted by non banks. These are funds,

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Speaker 6: These are other types of entities ups that are not

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Speaker 6: particularly transparent. You know, when a private reap, for example,

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Speaker 6: calculates net asset value, there's no rule for how they

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Speaker 6: do that, so you know, it's, to say the least,

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Speaker 6: it's hard to judge what's going on inside these entities

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Speaker 6: and the banks financed them. So that's why a couple

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Speaker 6: of the witnesses referred specifically to that and said do

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Speaker 6: you want more of that? And that's the real question

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Speaker 6: before both the Senate and the bank regulators. Do you

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Speaker 6: really want to go down this road? Because the capital

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Speaker 6: rates are so punitive that no US large bank would

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Speaker 6: want to be in residential mortgage at all. Think about that.

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Speaker 6: No condo loans. You know, that's largely a big bank market.

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Speaker 6: The little banks don't do much business there.

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Speaker 4: But you know too that at the same time stability

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Speaker 4: within the broader financial system. This was always one of

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Speaker 4: the arguments by hedge funds and private equity firms that

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Speaker 4: you know, well, banks shouldn't be in some of in

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Speaker 4: some of this business, we're pulling some of the risk

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Speaker 4: out of, you know, the financial system.

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Speaker 6: And I agree with that. Operationally, we want non banks

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Speaker 6: to take care of mortgages. They're much better at it,

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Speaker 6: much better orders of magnitude, more efficient, and it's good

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Speaker 6: to have the commercial banks as the lenders. They are

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Speaker 6: essentially the gatekeepers, right. But you and I both know

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Speaker 6: that if a money market funder rolled over, the government

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Speaker 6: would intervene. This is why I said was doing two

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Speaker 6: trillion dollars of reverse repost a year ago. They essentially

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Speaker 6: had to come in and save the money market funds

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Speaker 6: from getting zeroed out when t bills were very low. Today,

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Speaker 6: that problems reversed itself in Yellen's issuing a lot of

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Speaker 6: tea bills to facilitate that. Right, But long term, I

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Speaker 6: think the non bank sector is going to have to

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Speaker 6: live with the interest rates like everybody else, and I

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Speaker 6: think the long end of the curve will be higher

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Speaker 6: than it is today. That's going to normalize, right, That'll

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Speaker 6: be a different world for non banks, particularly because they

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Speaker 6: funds in the bond market. Unless you're a read and

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Speaker 6: you can sell stock, most other non banks have to

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Speaker 6: put out high yield term debt raise capital, and then

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Speaker 6: the banks do all the secured financing for them. So

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Speaker 6: if you're a fund whatever, it is right right night,

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Speaker 6: you know, but it is such an important part of

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Speaker 6: the economy. I like the partnership with the banks doing

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Speaker 6: the wholesale work. I think it's better for them. Okay,

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Speaker 6: they don't want to face consumers now, all.

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Speaker 2: Right, Chris, thanks so much for joining us. Chris Whalen,

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Speaker 2: chairman of Waling Global Advisors.

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Speaker 7: You're listening to the tape cats are Line program Bloomberg

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Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the

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Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business App.

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Speaker 7: You can also in live on Amazon Alexa from our

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Speaker 7: flagship New York station. Just say Alexa, play Bloomberg eleven thirty.

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Speaker 4: Talk to somebody who.

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Speaker 2: Does this for Living Quincy Crosby, she's achieved the global

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Speaker 2: strategist for LPL Financial. She joins us Quincy, what do

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Speaker 2: you make of the last four or five weeks? That

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Speaker 2: was the heck of a November four all these markets.

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Speaker 8: Well, it was, And what the beautiful part of it

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Speaker 8: is is how perverse the markets can be. Because what

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Speaker 8: happened was we were in October and by the time

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Speaker 8: we got to the end of the October, nobody believed

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Speaker 8: in seasonality. Nobody believed in November or December seasonality. Nobody

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Speaker 8: believed that this market could actually enjoy an important rally.

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Speaker 8: And then on November first, almost like clockwork, we get

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Speaker 8: the Treasury announcement, which was positive for the markets in

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Speaker 8: terms of funding needs a little bit lower. And then

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Speaker 8: the Fed at that afternoon meeting right after the Treasury announcement,

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Speaker 8: for the market interpreting it as at dubbish pivot that

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Speaker 8: they're finished. Then added to all of this is the

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Speaker 8: most important narrative, and that is that the market is

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Speaker 8: convinced that the FED is going to cut rates even

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Speaker 8: as early as March. This part of that narrative is

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Speaker 8: I think completely what the market is focused on. However,

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Speaker 8: when we see these yields coming down, we always look

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Speaker 8: at the pace of a direction, how quick or how slow.

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Speaker 8: It has been very fast, coming from five percent on

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Speaker 8: October nineteenth all the way down to today, it's been

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Speaker 8: very quick. How about that. It is screaming a difficult economy,

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Speaker 8: a difficult backdrop, a perhaps a pride for help from

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Speaker 8: the Federal Reserve, which is sticking to its narrative. No,

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Speaker 8: we're not going to cut rates. The market is saying

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Speaker 8: you're wrong, and you know it. And so it's going

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Speaker 8: to be interesting to see what the Fed has to

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Speaker 8: say next week.

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Speaker 4: Well, we have before we get to next week, a

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Speaker 4: big week of economic data, culminating with the jobs report,

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Speaker 4: and we have very disparate signals coming through. Is the

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Speaker 4: data bad enough to warrant some of what we're seeing

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Speaker 4: in interest rates WAPs? You know, the Fed cuts next year,

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Speaker 4: or our investors getting ahead of themselves.

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Speaker 8: Well, they're probably getting ahead of themselves. But again, when

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Speaker 8: you look at the treasury market and you see the

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Speaker 8: rates coming down that quickly, it typically is underpinned by

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Speaker 8: a growth scare. I mean, you don't usually see rates

435
00:23:39,600 --> 00:23:42,879
Speaker 8: coming down that quickly. When rates moved up dramatically to

436
00:23:43,000 --> 00:23:48,080
Speaker 8: five percent. Jennert Yellen said, well, the term premium, it

437
00:23:48,160 --> 00:23:51,560
Speaker 8: is based on the fact that the economy is so strong. Well,

438
00:23:51,600 --> 00:23:54,560
Speaker 8: now that we're going in the other direction, doctor Yellen,

439
00:23:54,640 --> 00:23:56,960
Speaker 8: I wonder what she has to say now about how

440
00:23:56,960 --> 00:23:58,600
Speaker 8: strong the backdrop.

441
00:23:58,160 --> 00:24:02,040
Speaker 4: Is hold up though? Direction we saw it wasn't third

442
00:24:02,080 --> 00:24:05,440
Speaker 4: quarter GDP point two percent annualized. Are we truly going

443
00:24:05,440 --> 00:24:06,199
Speaker 4: in the other direction?

444
00:24:07,240 --> 00:24:11,840
Speaker 8: Well, right now, the same forecaster, the Atlanta Fed GDP

445
00:24:12,000 --> 00:24:15,719
Speaker 8: now that had it almost nailed at five point one

446
00:24:15,800 --> 00:24:18,280
Speaker 8: five point two percent for the third quarter is looking

447
00:24:18,320 --> 00:24:21,000
Speaker 8: at one point three percent right now. Of course, tomorrow

448
00:24:21,119 --> 00:24:23,119
Speaker 8: is going to Friday is going to make an important

449
00:24:23,119 --> 00:24:26,520
Speaker 8: difference in terms of what it has for December. But

450
00:24:26,640 --> 00:24:28,960
Speaker 8: the fact is it's not a recession. It may not

451
00:24:29,080 --> 00:24:32,919
Speaker 8: be stellar, but it's not a recession. But again, this

452
00:24:33,119 --> 00:24:36,439
Speaker 8: persistence of the market saying the Fed is going to

453
00:24:36,480 --> 00:24:40,399
Speaker 8: cutreates it doesn't end. In fact, if anything, it's been intensifying.

454
00:24:41,119 --> 00:24:43,480
Speaker 2: All right, So, Quincy, it's it's December. It's time to

455
00:24:43,480 --> 00:24:46,280
Speaker 2: start looking towards the year ahead. Here, what are you

456
00:24:46,320 --> 00:24:48,400
Speaker 2: telling your clients about twenty twenty four.

457
00:24:49,680 --> 00:24:52,320
Speaker 8: Well, our view is that, first of all, to end

458
00:24:52,320 --> 00:24:56,160
Speaker 8: this year. We like the fact that we're seeing some consolidation.

459
00:24:56,359 --> 00:25:00,280
Speaker 8: Even though it's this meandering between positive negative terity, it's

460
00:25:00,320 --> 00:25:03,880
Speaker 8: moving sideways. That's pretty healthy. It should lead us to

461
00:25:03,960 --> 00:25:07,080
Speaker 8: a rally toward the end of the year. However, we

462
00:25:07,119 --> 00:25:10,120
Speaker 8: don't want it to be completely overbought going into next

463
00:25:10,200 --> 00:25:13,040
Speaker 8: year because that sets the stage for more of a

464
00:25:13,080 --> 00:25:17,600
Speaker 8: market pulling back as the market figures out how is

465
00:25:17,640 --> 00:25:21,439
Speaker 8: the economy growing? Is it slowing too much at this

466
00:25:21,560 --> 00:25:24,800
Speaker 8: stage is still a question mark. We're still in positive

467
00:25:24,880 --> 00:25:30,800
Speaker 8: territory in terms of GDP forecasts, so we're looking at quality. Actually,

468
00:25:30,840 --> 00:25:34,199
Speaker 8: we're looking at large cap growth, and we think that

469
00:25:34,359 --> 00:25:36,920
Speaker 8: is the place to be, particularly if you're in companies

470
00:25:36,920 --> 00:25:39,760
Speaker 8: that have strong balance sheets. That's how we're looking at

471
00:25:39,840 --> 00:25:42,000
Speaker 8: the beginning of next year. We do think a recession

472
00:25:42,040 --> 00:25:44,640
Speaker 8: may hit. It could be a technical recession, just as

473
00:25:44,640 --> 00:25:47,679
Speaker 8: we had over a year ago. But the fact is

474
00:25:47,720 --> 00:25:50,840
Speaker 8: we do see a slow down and then you're listening.

475
00:25:50,520 --> 00:25:54,040
Speaker 7: To the tape. Catch our live program Bloomberg Markets weekdays

476
00:25:54,040 --> 00:25:57,239
Speaker 7: at ten am Eastern on Bloomberg Radio, Tune it up,

477
00:25:57,320 --> 00:26:00,199
Speaker 7: Bloomberg dot Com and the Bloomberg Business app. You can

478
00:26:00,240 --> 00:26:03,479
Speaker 7: also listen live on Amazon Alexa from our flagship New

479
00:26:03,520 --> 00:26:04,040
Speaker 7: York station.

480
00:26:04,400 --> 00:26:10,360
Speaker 9: Just say we were marveling earlier at the Russell two thousand,

481
00:26:11,440 --> 00:26:15,080
Speaker 9: the only index that's actually moving today, up eight tens

482
00:26:15,080 --> 00:26:16,280
Speaker 9: of one percent.

483
00:26:16,960 --> 00:26:20,399
Speaker 4: Are you seeing breath coming back into this market in

484
00:26:20,520 --> 00:26:21,480
Speaker 4: twenty twenty.

485
00:26:21,240 --> 00:26:26,520
Speaker 8: Four, Well, most likely we will unless the market and

486
00:26:26,600 --> 00:26:29,760
Speaker 8: the backdrop is very weak, because we know that what

487
00:26:29,920 --> 00:26:33,280
Speaker 8: happens is the market narrows and the money goes into

488
00:26:33,320 --> 00:26:38,040
Speaker 8: those big, big, megaatech names because they are seen as defensives.

489
00:26:38,359 --> 00:26:41,600
Speaker 8: The Russell two thousand, I watch it as a bellwether

490
00:26:41,880 --> 00:26:44,240
Speaker 8: because I'll tell you, as soon as it believes that

491
00:26:44,280 --> 00:26:47,399
Speaker 8: the economy is slowing too much, that market just pulls

492
00:26:47,480 --> 00:26:50,480
Speaker 8: right back down. It is granular. It is probably the

493
00:26:50,520 --> 00:26:55,040
Speaker 8: most important bell weather of the economy, the real economy

494
00:26:55,240 --> 00:26:57,439
Speaker 8: that we have, because but it will move quickly. And

495
00:26:57,520 --> 00:27:00,639
Speaker 8: so I think it's great that it's moving higher because

496
00:27:00,640 --> 00:27:05,120
Speaker 8: at this point it's suggesting that the economic backdrop remains constructive.

497
00:27:05,280 --> 00:27:09,199
Speaker 8: The banks twenty percent of banks, twenty percent industrials, and

498
00:27:09,240 --> 00:27:12,480
Speaker 8: you've got buyer checks in there. The banks are moving

499
00:27:12,520 --> 00:27:15,160
Speaker 8: and that's why they're moving higher because rates are coming down.

500
00:27:15,160 --> 00:27:18,040
Speaker 8: But the economy is still solid according to the Russell

501
00:27:18,080 --> 00:27:21,280
Speaker 8: two thousand. That will probably change as we move into

502
00:27:21,320 --> 00:27:25,000
Speaker 8: it a more difficult environment in twenty twenty four as

503
00:27:25,040 --> 00:27:28,840
Speaker 8: the market absorbs still the higher rates.

504
00:27:29,560 --> 00:27:32,320
Speaker 2: You know, it's interesting, Quincy. Just another part of the

505
00:27:32,320 --> 00:27:34,520
Speaker 2: market that's just been running all over the place is

506
00:27:34,560 --> 00:27:37,240
Speaker 2: the energy market. WTI crewde oil is down four point

507
00:27:37,240 --> 00:27:40,520
Speaker 2: two percent today. We're not below seventy dollars a barrel.

508
00:27:40,640 --> 00:27:42,760
Speaker 2: I mean, I've said it once, I'll say it again.

509
00:27:42,760 --> 00:27:44,520
Speaker 2: I'm so glad I didn't. I could never be an

510
00:27:44,840 --> 00:27:48,080
Speaker 2: oil trader. The volatility just crushed me. What do you

511
00:27:48,119 --> 00:27:50,199
Speaker 2: make about the energy space? I mean, is it too

512
00:27:50,240 --> 00:27:52,280
Speaker 2: much volatility for you to look at or how do

513
00:27:52,320 --> 00:27:53,040
Speaker 2: you guys think about that?

514
00:27:53,080 --> 00:27:55,960
Speaker 8: No, no, we look at it, and having worked in it,

515
00:27:56,520 --> 00:28:04,200
Speaker 8: I actually enjoy this. There's trouble in the OPEC plus

516
00:28:04,240 --> 00:28:08,440
Speaker 8: cartel in their oil patch. Obviously they couldn't come out

517
00:28:08,440 --> 00:28:12,520
Speaker 8: with a deal an announcement. But nonetheless the companies make money.

518
00:28:12,520 --> 00:28:15,520
Speaker 8: The cash flow is strong. But the fact is here

519
00:28:15,560 --> 00:28:18,399
Speaker 8: in the United States, I'm getting two ninety nine. By

520
00:28:18,440 --> 00:28:20,560
Speaker 8: the way, in Charlottesville, Virginia. You got to come down

521
00:28:20,600 --> 00:28:24,320
Speaker 8: here to fill out really nice. But the point here

522
00:28:24,520 --> 00:28:29,120
Speaker 8: is America is producing more oil thirteen million barrels a day.

523
00:28:29,480 --> 00:28:32,360
Speaker 8: It's a record that's not good. You want to see

524
00:28:32,400 --> 00:28:34,800
Speaker 8: a pullback now. The thing I worry about, by the way,

525
00:28:35,320 --> 00:28:38,120
Speaker 8: is the Saudis have done this in the past, flood

526
00:28:38,200 --> 00:28:41,720
Speaker 8: the market with oil in order to push out our producers.

527
00:28:41,920 --> 00:28:43,760
Speaker 8: They've done this in the past. I don't think they

528
00:28:43,800 --> 00:28:47,080
Speaker 8: would do it now. What they really want are deeper

529
00:28:47,120 --> 00:28:50,760
Speaker 8: cuts and habit could co join with Russia and the

530
00:28:50,800 --> 00:28:55,400
Speaker 8: African States and come out with a very strong production cut. Remember,

531
00:28:55,840 --> 00:28:58,320
Speaker 8: they need about seventy eight bucks a barrel, even though

532
00:28:58,320 --> 00:29:00,440
Speaker 8: it's not much to get the oil out and find it.

533
00:29:00,600 --> 00:29:05,800
Speaker 8: Because they have a very large benefit program, welfare program,

534
00:29:05,800 --> 00:29:08,840
Speaker 8: and then and then they're building cities, they need higher

535
00:29:08,880 --> 00:29:12,080
Speaker 8: oil prices. And I wouldn't put it past them to

536
00:29:12,160 --> 00:29:16,200
Speaker 8: try to negotiate a very deep, not voluntary, but a

537
00:29:16,320 --> 00:29:19,440
Speaker 8: very deep production cut, not not flood the market with

538
00:29:19,480 --> 00:29:21,360
Speaker 8: oil to get us out. But they've done it before.

539
00:29:21,560 --> 00:29:22,760
Speaker 8: I don't think they'll do it again.

540
00:29:23,120 --> 00:29:25,600
Speaker 4: Yeah, and I should mention for our listeners here. Quincy

541
00:29:26,120 --> 00:29:28,479
Speaker 4: is a former US diplomat and was posted as an

542
00:29:28,560 --> 00:29:32,360
Speaker 4: energy at TACHE. The US and the embassy in London.

543
00:29:32,520 --> 00:29:37,360
Speaker 4: So interesting perspective there. You know, how does that How

544
00:29:37,400 --> 00:29:42,520
Speaker 4: does cheaper prices at the pump play out for the

545
00:29:42,560 --> 00:29:46,560
Speaker 4: American consumer, which many companies have been calling out as

546
00:29:46,800 --> 00:29:49,160
Speaker 4: a little bit constrained at this point.

547
00:29:49,960 --> 00:29:54,120
Speaker 8: Well, absolutely, obviously it helps. But here's here is one

548
00:29:54,160 --> 00:29:57,200
Speaker 8: of the most fascinating parts of this. You would think

549
00:29:57,320 --> 00:30:01,680
Speaker 8: that US consumer expectations a future inflation would come down

550
00:30:02,160 --> 00:30:04,560
Speaker 8: based on the lower oil prices because there's a very

551
00:30:04,600 --> 00:30:09,640
Speaker 8: high positive correlation between the consumer gasoline prices and by

552
00:30:09,680 --> 00:30:14,080
Speaker 8: the way, how they look at the administration. However, what

553
00:30:14,200 --> 00:30:19,000
Speaker 8: we saw in the last University of Michigan Consumer Confidence Report,

554
00:30:19,240 --> 00:30:23,080
Speaker 8: the component that looks at future inflation, Americans came out

555
00:30:23,080 --> 00:30:26,840
Speaker 8: and said, well, we acknowledge that inflation has come down,

556
00:30:27,000 --> 00:30:30,680
Speaker 8: but we expected to climb higher. The FED does not

557
00:30:30,920 --> 00:30:34,360
Speaker 8: want to see this because what happens is this psychology

558
00:30:34,720 --> 00:30:39,040
Speaker 8: becomes intact, it becomes unanchored actually from the FED standpoint.

559
00:30:39,400 --> 00:30:43,240
Speaker 8: And it is fascinating because last time go around, when

560
00:30:43,360 --> 00:30:48,480
Speaker 8: the Strategic Petroleum Reserve was pushed out into the tanks,

561
00:30:48,840 --> 00:30:53,480
Speaker 8: Americans said, inflation is coming down, and even Biden's approval

562
00:30:53,560 --> 00:30:56,320
Speaker 8: ratings actually ticked up, but not this time.

563
00:30:56,640 --> 00:30:58,920
Speaker 2: All right, Quincy, thank you so much once again for

564
00:30:59,040 --> 00:31:01,480
Speaker 2: taking some time to chat with this. Quincy Crosby, Chief,

565
00:31:01,520 --> 00:31:03,520
Speaker 2: a global strategist for LPL Financial.

566
00:31:05,040 --> 00:31:08,120
Speaker 1: Thanks for listening to the Bloomberg Markets podcasts. You can

567
00:31:08,160 --> 00:31:11,920
Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever

568
00:31:12,040 --> 00:31:15,760
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter

569
00:31:15,960 --> 00:31:17,880
Speaker 1: at Matt Miller nineteen seventy three.

570
00:31:18,320 --> 00:31:20,680
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571
00:31:20,840 --> 00:31:23,520
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572
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