1 00:00:01,440 --> 00:00:05,320 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 2 00:00:05,400 --> 00:00:08,479 Speaker 1: weekdays at ten am Eastern on Apple Car playing Android 3 00:00:08,520 --> 00:00:11,600 Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever 4 00:00:11,680 --> 00:00:15,520 Speaker 1: you get your podcasts, or watch us live on YouTube. 5 00:00:16,600 --> 00:00:19,239 Speaker 2: So here's the story of the day. First of all, John, 6 00:00:19,280 --> 00:00:22,200 Speaker 2: I know you're the AI expert here at the Sloomberg Radio. 7 00:00:22,280 --> 00:00:24,680 Speaker 2: But some nice news out of here. Some dude we 8 00:00:24,760 --> 00:00:27,920 Speaker 2: got at Bloomberg News. He's out in California's somewhere, Mark Armern. 9 00:00:27,920 --> 00:00:30,400 Speaker 2: He's pretty good on this Apple thing, which is a 10 00:00:30,400 --> 00:00:34,040 Speaker 2: pretty good career move for him. And he just creates 11 00:00:34,040 --> 00:00:36,680 Speaker 2: a story. You put Apple in a story with Google. 12 00:00:36,840 --> 00:00:39,680 Speaker 2: This is an alphabet free zone. Apple and Google in 13 00:00:39,760 --> 00:00:42,879 Speaker 2: a story that's gonna be big news. That's a lot 14 00:00:42,880 --> 00:00:45,639 Speaker 2: of market characture, that's a lot of market app. Then 15 00:00:45,680 --> 00:00:48,240 Speaker 2: you throw in AI. Then you got something. Then you 16 00:00:48,320 --> 00:00:49,879 Speaker 2: get something that's called a green bee, which I think 17 00:00:49,960 --> 00:00:53,680 Speaker 2: is good for if you're one of those reporter geeks. Right, absolutely, okay, 18 00:00:53,800 --> 00:00:56,280 Speaker 2: very good, Tom Jow Speaking of reporter geeks, he joins 19 00:00:56,320 --> 00:00:59,840 Speaker 2: us here. He heads up all of our technology news 20 00:01:00,080 --> 00:01:02,960 Speaker 2: coverage at Bloomberg News. Huge, huge job. He's got a 21 00:01:03,000 --> 00:01:04,680 Speaker 2: great team of reporters working for him. 22 00:01:04,760 --> 00:01:07,759 Speaker 3: I time my visit well exactly, I time my visit 23 00:01:07,800 --> 00:01:09,400 Speaker 3: around Mark German scoop Mark. 24 00:01:09,200 --> 00:01:11,880 Speaker 2: German scoops Tom. What do you make of this reporting 25 00:01:11,880 --> 00:01:15,880 Speaker 2: coming out of mister German here about Apple, about Alphabet 26 00:01:16,080 --> 00:01:17,880 Speaker 2: and about AI. What do you think is happening here? 27 00:01:18,360 --> 00:01:22,520 Speaker 3: This is Apple recognizing that it needs to weave artificial 28 00:01:22,560 --> 00:01:29,000 Speaker 3: intelligence more deeply, more intelligently into its products, into the iPhone. 29 00:01:29,040 --> 00:01:33,360 Speaker 3: It already has this really long standing, deep, very lucrative 30 00:01:33,400 --> 00:01:36,759 Speaker 3: relationship with Google in terms of putting Google's search, making 31 00:01:36,800 --> 00:01:41,280 Speaker 3: it very paramount on the iPhone. This is let's take 32 00:01:41,319 --> 00:01:44,200 Speaker 3: it to the next step. Let's take this relationship further 33 00:01:45,120 --> 00:01:49,880 Speaker 3: and let's weave your generative AI tools into what we 34 00:01:50,000 --> 00:01:51,880 Speaker 3: have on the iPhone and make it better and make 35 00:01:51,920 --> 00:01:56,640 Speaker 3: it smarter. Let's leverage this relationship. Also, it's important to 36 00:01:56,680 --> 00:01:59,720 Speaker 3: note that Apple is seen as a laggard when it 37 00:01:59,720 --> 00:02:05,280 Speaker 3: comes to artificial intelligence. Everyone's got something big. Every big 38 00:02:05,440 --> 00:02:10,760 Speaker 3: tech company has a big AI story. Apple is seen 39 00:02:10,800 --> 00:02:11,919 Speaker 3: as a laggard in that. 40 00:02:12,160 --> 00:02:15,399 Speaker 4: And this is an admission in some way that AI 41 00:02:16,000 --> 00:02:17,760 Speaker 4: Apple can't do it by themselves. 42 00:02:17,919 --> 00:02:19,760 Speaker 3: That's right, You don't get why. 43 00:02:19,680 --> 00:02:20,760 Speaker 4: Would the stock be higher. 44 00:02:21,280 --> 00:02:24,400 Speaker 3: You don't get to build this from scratch. I think 45 00:02:24,600 --> 00:02:29,679 Speaker 3: there's a few things that work here. One is regulators 46 00:02:29,720 --> 00:02:33,200 Speaker 3: are already looking at the relationship between Apple and Google. 47 00:02:33,720 --> 00:02:37,000 Speaker 3: They don't like aspects of it. DJ is looking. 48 00:02:36,760 --> 00:02:37,280 Speaker 2: Hard at that. 49 00:02:37,360 --> 00:02:40,679 Speaker 3: The FDC is already looking at the relationship between Microsoft 50 00:02:41,000 --> 00:02:46,280 Speaker 3: and open AI. The concern is there's innovation happening in 51 00:02:46,480 --> 00:02:51,440 Speaker 3: artificial intelligence, and if you have combinations between the biggest 52 00:02:51,440 --> 00:02:54,360 Speaker 3: players in tech, the most powerful players in tech, is 53 00:02:54,400 --> 00:02:56,880 Speaker 3: that going to thwart innovation? And is it going to 54 00:02:56,960 --> 00:02:57,919 Speaker 3: thwart competition? 55 00:02:58,200 --> 00:03:01,080 Speaker 2: So how do we think the regulators might look at 56 00:03:01,080 --> 00:03:01,720 Speaker 2: something like this. 57 00:03:02,320 --> 00:03:06,080 Speaker 3: I think they need to figure out whether the talks 58 00:03:06,120 --> 00:03:09,760 Speaker 3: are going to come to fruition first and foremost. We're 59 00:03:09,760 --> 00:03:13,800 Speaker 3: definitely sending out feelers throughout the Bloomberg organization to figure 60 00:03:13,800 --> 00:03:16,200 Speaker 3: out to figure out what the next step is and 61 00:03:16,280 --> 00:03:20,079 Speaker 3: to assess what the argument would be for and against. 62 00:03:20,160 --> 00:03:22,440 Speaker 3: If you're a regulator, but if you're ready to think 63 00:03:22,480 --> 00:03:24,120 Speaker 3: about it, if you're at the DJ, if you're at 64 00:03:24,120 --> 00:03:29,600 Speaker 3: the FTC, do you want to see more concentration, more 65 00:03:29,680 --> 00:03:32,800 Speaker 3: collaboration between the two most powerful companies in the world, 66 00:03:33,000 --> 00:03:35,440 Speaker 3: or do you want to say to them, Apple, go 67 00:03:35,480 --> 00:03:36,600 Speaker 3: and build your own. 68 00:03:37,160 --> 00:03:40,320 Speaker 4: How long does this relationship last? If Apple finds a 69 00:03:40,360 --> 00:03:42,920 Speaker 4: better partner, could they drop Google like a hot rock. 70 00:03:44,440 --> 00:03:48,400 Speaker 3: We know, as we reported, Apple held talks with Open Ai. 71 00:03:48,880 --> 00:03:52,360 Speaker 3: We also know that the talks that are existing now 72 00:03:52,440 --> 00:03:55,720 Speaker 3: are the ones between Apple and Google. Could you kind 73 00:03:55,720 --> 00:03:58,520 Speaker 3: of rekindle something? Could you start something up with somebody else? 74 00:03:58,680 --> 00:04:02,720 Speaker 3: I think the sky's the limit here. Apple needs something big. 75 00:04:03,560 --> 00:04:06,360 Speaker 3: They need something new. They need the app. The iPhone 76 00:04:06,400 --> 00:04:09,080 Speaker 3: has been around, as we all know, since two thousand 77 00:04:09,080 --> 00:04:12,720 Speaker 3: and seven. They need a big new thing. They need 78 00:04:12,720 --> 00:04:15,480 Speaker 3: that next big thing. Remember they were working on a car. 79 00:04:16,040 --> 00:04:19,080 Speaker 3: As Bloomberg told you a couple of months ago. That 80 00:04:19,320 --> 00:04:21,920 Speaker 3: project is actually it's just been a few weeks. That 81 00:04:21,960 --> 00:04:27,080 Speaker 3: project is now being put being being being killed. They're 82 00:04:27,120 --> 00:04:30,039 Speaker 3: going to redeploy some of those people into AI initiatives. 83 00:04:30,160 --> 00:04:33,719 Speaker 3: But they need that next big thing, and weaving AI 84 00:04:33,839 --> 00:04:36,360 Speaker 3: into your iPhone could be one of them. 85 00:04:37,600 --> 00:04:41,159 Speaker 2: So Apple also has a developer conference. I believe in June. 86 00:04:41,440 --> 00:04:44,800 Speaker 2: Tom and a lot of folks think that maybe that's 87 00:04:44,880 --> 00:04:46,960 Speaker 2: the time Tim Coast can get up on stage and 88 00:04:47,000 --> 00:04:51,320 Speaker 2: say here's our AI play. Is that is this part 89 00:04:51,360 --> 00:04:54,880 Speaker 2: of it? Is this It seems like, as John was suggesting, 90 00:04:55,640 --> 00:04:57,840 Speaker 2: this is kind of admission, we don't have that big 91 00:04:58,120 --> 00:05:01,320 Speaker 2: a wow moment for you. How are you thinking about that? 92 00:05:01,560 --> 00:05:03,920 Speaker 3: It takes a lot of time, It takes a lot 93 00:05:03,920 --> 00:05:07,160 Speaker 3: of people. It takes a lot of resources to build 94 00:05:07,200 --> 00:05:11,440 Speaker 3: these large language models upon which generative AI tools are based. Right, 95 00:05:11,720 --> 00:05:16,400 Speaker 3: open ai was not created yesterday. You know, they've made 96 00:05:16,400 --> 00:05:18,960 Speaker 3: a big splash in the last year, but that was 97 00:05:19,080 --> 00:05:23,360 Speaker 3: years in the making. Microsoft's relationship with open ai works 98 00:05:23,400 --> 00:05:26,400 Speaker 3: to their advantage. Google has been working on its own 99 00:05:26,480 --> 00:05:30,680 Speaker 3: generative AI technology for many, many years. That was not 100 00:05:31,240 --> 00:05:33,760 Speaker 3: top priority for Apple for all this time. They've been 101 00:05:33,760 --> 00:05:35,599 Speaker 3: working on the phone, They've been working on the watch, 102 00:05:35,640 --> 00:05:37,400 Speaker 3: they've been working on the car, They've been working all 103 00:05:37,440 --> 00:05:40,599 Speaker 3: these things that we use and are very lucrative for 104 00:05:40,680 --> 00:05:43,080 Speaker 3: them and are making them one of the biggest and 105 00:05:43,160 --> 00:05:44,719 Speaker 3: most valuable companies. 106 00:05:44,279 --> 00:05:45,040 Speaker 5: In the world. 107 00:05:45,560 --> 00:05:48,560 Speaker 3: But this was not the biggest area of concentration for them, 108 00:05:48,560 --> 00:05:51,239 Speaker 3: at least not as much as other companies. It takes time. 109 00:05:51,839 --> 00:05:54,400 Speaker 3: My sense is you can you can, even if you 110 00:05:54,520 --> 00:05:57,839 Speaker 3: haven't nailed down all of your details on a relationship 111 00:05:57,880 --> 00:06:01,320 Speaker 3: what like this, you can still use your developer conference 112 00:06:01,640 --> 00:06:05,040 Speaker 3: to drop hints, to say, here's what's coming down the pike. 113 00:06:05,360 --> 00:06:07,799 Speaker 3: Here's a taste of it, even if it's not completely 114 00:06:08,000 --> 00:06:10,800 Speaker 3: They like to have stuff that's pretty baked before they 115 00:06:10,839 --> 00:06:14,400 Speaker 3: start talking about it publicly. So I don't think they're 116 00:06:14,400 --> 00:06:16,839 Speaker 3: gonna jump the gun here, but it would be nice 117 00:06:16,839 --> 00:06:19,480 Speaker 3: to have this in your back pocket to at least 118 00:06:19,560 --> 00:06:20,239 Speaker 3: drop some hints. 119 00:06:20,320 --> 00:06:23,320 Speaker 4: Okay, so what does it do to my iPhone? And 120 00:06:23,560 --> 00:06:25,200 Speaker 4: do I now have to go out and buy a 121 00:06:25,240 --> 00:06:27,520 Speaker 4: new model iPhone? What does it do for sales? And 122 00:06:27,960 --> 00:06:31,400 Speaker 4: you know, what's the practical impact for an iPhone user? 123 00:06:31,720 --> 00:06:36,120 Speaker 3: Look, we're already using our phones for virtually everything throughout 124 00:06:36,160 --> 00:06:39,560 Speaker 3: the day. These are like, it's the one thing that 125 00:06:39,600 --> 00:06:42,080 Speaker 3: you would take if you're running out of the house 126 00:06:42,120 --> 00:06:45,400 Speaker 3: with the fire right you know, it would be things 127 00:06:45,640 --> 00:06:49,600 Speaker 3: like creating images, writing essays, the things that we are 128 00:06:49,680 --> 00:06:55,240 Speaker 3: already using tools like open AI for. Could you more 129 00:06:55,360 --> 00:06:58,560 Speaker 3: easily incorporate those into your iPhone so that you don't 130 00:06:58,560 --> 00:07:01,080 Speaker 3: have to fire up the laptop, so that you don't 131 00:07:01,120 --> 00:07:06,000 Speaker 3: have to delve into a different app. Could you weave 132 00:07:06,080 --> 00:07:09,560 Speaker 3: this into the tools that you already have right on 133 00:07:09,600 --> 00:07:10,880 Speaker 3: your phone It's. 134 00:07:10,760 --> 00:07:13,080 Speaker 4: Not like five G like everybody told me I had 135 00:07:13,120 --> 00:07:15,080 Speaker 4: to upgrade my phone to go to five G. I 136 00:07:15,120 --> 00:07:17,000 Speaker 4: don't even notice it. It's like, I don't know what 137 00:07:18,360 --> 00:07:18,840 Speaker 4: this is different. 138 00:07:18,840 --> 00:07:20,560 Speaker 2: All right, Tom Giles, thanks so much for joining us. 139 00:07:20,560 --> 00:07:23,000 Speaker 2: Tom's based in San Francisco. We got him in your 140 00:07:23,080 --> 00:07:25,160 Speaker 2: four weeks. We pulled him into the studio here, Tom Giles, 141 00:07:25,440 --> 00:07:28,480 Speaker 2: Bloomberg News, Senior executive editor for Global Technology. There we go. 142 00:07:28,480 --> 00:07:31,200 Speaker 2: He's got a whole bunch of great technology reporters on 143 00:07:31,280 --> 00:07:32,640 Speaker 2: his team, and they're doing some good stuff. 144 00:07:34,080 --> 00:07:37,960 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 145 00:07:38,040 --> 00:07:41,080 Speaker 1: weekdays at ten am Eastern on Apple card Play and 146 00:07:41,080 --> 00:07:44,000 Speaker 1: Android Otto with the Bloomberg Business App. You can also 147 00:07:44,080 --> 00:07:47,560 Speaker 1: listen live on Amazon Alexa from our flagship New York station. 148 00:07:47,960 --> 00:07:50,720 Speaker 1: Just say Alexa play Bloomberg eleven thirty. 149 00:07:52,200 --> 00:07:54,440 Speaker 2: Let's talk fixed income, shall we Let's go from skiing 150 00:07:54,840 --> 00:07:56,920 Speaker 2: to the bond market. Ur J Gallow he could do that. 151 00:07:57,520 --> 00:08:01,200 Speaker 2: Senior portfolio manager for fixed and fixing. It's Federated Hermes 152 00:08:01,600 --> 00:08:05,080 Speaker 2: joining us via zoom here. Hey, you know RJ. Since 153 00:08:05,120 --> 00:08:08,239 Speaker 2: the last time we spoke to you, yields are moving higher. 154 00:08:08,280 --> 00:08:12,360 Speaker 2: Here I guess the market's kind of losing its enthusiasm 155 00:08:12,400 --> 00:08:15,080 Speaker 2: for I guess aggressive rate cutting. What do you make 156 00:08:15,080 --> 00:08:16,560 Speaker 2: of this market? 157 00:08:17,760 --> 00:08:23,360 Speaker 6: Well, it's good to see you again on YouTube. I 158 00:08:23,400 --> 00:08:27,720 Speaker 6: would say that the market ended twenty twenty three, which 159 00:08:27,760 --> 00:08:29,760 Speaker 6: seems quite a while ago, but it wasn't that long 160 00:08:29,760 --> 00:08:32,439 Speaker 6: ago when the markets were priced for almost seven eases 161 00:08:33,440 --> 00:08:35,760 Speaker 6: in the calendar twenty twenty four, and the markets had 162 00:08:35,800 --> 00:08:39,720 Speaker 6: just gotten way ahead of themselves. There was excessive confidence 163 00:08:39,720 --> 00:08:43,800 Speaker 6: at the time that the dubvish tone of the December 164 00:08:43,880 --> 00:08:47,760 Speaker 6: FMC meeting opened the door for the following argument. Inflation 165 00:08:47,880 --> 00:08:52,840 Speaker 6: will continue to fall. Therefore, the Fed must ease nominal 166 00:08:52,920 --> 00:08:56,640 Speaker 6: rate targets so that real rates, real policy rates don't 167 00:08:56,800 --> 00:09:01,360 Speaker 6: inadvertently or undesirably rise. For that to work, you needed 168 00:09:01,360 --> 00:09:04,959 Speaker 6: inflation to continue to fall, and that just hasn't happened. 169 00:09:05,040 --> 00:09:09,000 Speaker 6: The inflation data has been sticky or buoyant at well 170 00:09:09,000 --> 00:09:14,080 Speaker 6: above target levels. The economic data, both jobs and growth 171 00:09:14,160 --> 00:09:17,120 Speaker 6: data have been pretty good. Not as good maybe as 172 00:09:17,360 --> 00:09:21,200 Speaker 6: some prior quarters that were stronger, but still nowhere near 173 00:09:22,240 --> 00:09:24,760 Speaker 6: probably a sufficient slowdown to get the Fed to be 174 00:09:24,840 --> 00:09:27,800 Speaker 6: concerned that we're heading towards harder landing. 175 00:09:27,880 --> 00:09:28,280 Speaker 7: Or something. 176 00:09:28,360 --> 00:09:31,760 Speaker 6: So since the data didn't cooperate with the argument that 177 00:09:31,800 --> 00:09:34,320 Speaker 6: the FED had to ease to prevent real rates from rising, 178 00:09:35,040 --> 00:09:37,719 Speaker 6: the Fed didn't have to ease, and that came out 179 00:09:37,760 --> 00:09:38,400 Speaker 6: of the markets. 180 00:09:38,960 --> 00:09:39,560 Speaker 7: Now we've got a. 181 00:09:39,520 --> 00:09:42,840 Speaker 6: Little less than three eases priced in cumulatively up until 182 00:09:42,840 --> 00:09:46,600 Speaker 6: the December twenty twenty four meeting, very consistent with the 183 00:09:46,600 --> 00:09:49,679 Speaker 6: Fed's dots, just in time for the dots to maybe change. 184 00:09:49,920 --> 00:09:53,000 Speaker 4: Okay, what you got to explain to the dummies out there, 185 00:09:53,000 --> 00:09:56,840 Speaker 4: including me, the real rate? Just how significant that is 186 00:09:56,880 --> 00:09:59,960 Speaker 4: in terms of doing some or all of the heavy lift. 187 00:10:02,120 --> 00:10:04,199 Speaker 7: It's a good question, you know, real rate. 188 00:10:04,240 --> 00:10:07,199 Speaker 6: Simply take a nominal yield or a nominal rate target, 189 00:10:08,000 --> 00:10:10,280 Speaker 6: use the upper end of the FED funds rage right 190 00:10:10,320 --> 00:10:13,880 Speaker 6: now at five point fifty, and subtract off, you know, 191 00:10:13,960 --> 00:10:16,040 Speaker 6: a four percent inflation rate, you've got a one point 192 00:10:16,080 --> 00:10:18,400 Speaker 6: five percent real rate. If you subtract off a three percent, 193 00:10:18,720 --> 00:10:20,959 Speaker 6: you've got a two point five percent real rate. If 194 00:10:20,960 --> 00:10:23,680 Speaker 6: inflation keeps going down to two and you don't move 195 00:10:23,720 --> 00:10:26,360 Speaker 6: your five point fifty upper end of your FED funds target, 196 00:10:26,800 --> 00:10:28,560 Speaker 6: you know, the Fed now has a three would end 197 00:10:28,640 --> 00:10:30,600 Speaker 6: up having in that scenario a three and a half 198 00:10:30,640 --> 00:10:36,600 Speaker 6: percent real FED funds rate, that's historically pretty hot. That's 199 00:10:36,600 --> 00:10:41,160 Speaker 6: the kind of constrictive or restrictive policy that could precipitate 200 00:10:41,480 --> 00:10:44,120 Speaker 6: a real economic downturn, a recession that the FED doesn't want. 201 00:10:45,280 --> 00:10:48,119 Speaker 7: But again, they don't need to move. If inflation itself 202 00:10:48,640 --> 00:10:49,439 Speaker 7: is stuck. 203 00:10:49,160 --> 00:10:52,720 Speaker 6: In the threes, you know, generally, looking whether at the 204 00:10:52,720 --> 00:10:57,080 Speaker 6: CPI or the or the PC deflator, then the Fed 205 00:10:57,160 --> 00:10:59,040 Speaker 6: might not need to be in such a rush to 206 00:10:59,480 --> 00:11:02,960 Speaker 6: reduce rates to prevent that real rate from rising. Secondly, 207 00:11:03,240 --> 00:11:05,360 Speaker 6: I think it's important to note that, you know, the 208 00:11:05,400 --> 00:11:08,040 Speaker 6: Fed doesn't really know where the equilibrium Fed funds rate 209 00:11:08,160 --> 00:11:10,679 Speaker 6: is the long term dot, and of course we're going 210 00:11:10,679 --> 00:11:12,200 Speaker 6: to get updates on the dots this week. 211 00:11:12,520 --> 00:11:13,800 Speaker 7: Is it two and a half percent? 212 00:11:14,320 --> 00:11:16,800 Speaker 6: The market if you look at so for futures out 213 00:11:16,840 --> 00:11:19,079 Speaker 6: three to five years, the market seems to think that 214 00:11:19,120 --> 00:11:22,079 Speaker 6: the that the long run equilibrium FED funds rate is 215 00:11:22,120 --> 00:11:24,040 Speaker 6: more like three and a half or three seven maybe. 216 00:11:25,280 --> 00:11:28,240 Speaker 6: So the Fed isn't going to ease based upon a 217 00:11:28,320 --> 00:11:32,160 Speaker 6: model if the data is still strong, labor markets tight, 218 00:11:32,480 --> 00:11:34,800 Speaker 6: and inflation not falling rapidly. 219 00:11:35,440 --> 00:11:38,200 Speaker 2: All right, So r J, given that kind of background, top, 220 00:11:39,520 --> 00:11:41,600 Speaker 2: how are you positioning your portfolio, what are you telling 221 00:11:41,640 --> 00:11:45,319 Speaker 2: your your teams to really look for sure? 222 00:11:45,400 --> 00:11:47,839 Speaker 6: Sure, so first of all, looking at sort of the 223 00:11:47,840 --> 00:11:50,240 Speaker 6: different lever levers than an active manager, which is what 224 00:11:50,280 --> 00:11:53,199 Speaker 6: we are can can do in a fixing income portfolio. 225 00:11:53,840 --> 00:11:57,559 Speaker 6: On duration, you know, once the market started to get 226 00:11:58,000 --> 00:11:59,840 Speaker 6: sort of disabused of the notion that we were going 227 00:11:59,880 --> 00:12:04,560 Speaker 6: to get seven eases, you know, we waited and took 228 00:12:04,600 --> 00:12:07,960 Speaker 6: a tactical long at times, we've gone back to neutral. 229 00:12:08,760 --> 00:12:11,360 Speaker 6: We went back to neutral before the most recent selloff. 230 00:12:12,200 --> 00:12:13,960 Speaker 6: We took a little bit of profits on what we 231 00:12:14,000 --> 00:12:16,040 Speaker 6: had as a very you know, temporary long position. 232 00:12:16,960 --> 00:12:17,640 Speaker 7: So that's worked. 233 00:12:17,640 --> 00:12:20,320 Speaker 6: We're at neutral now heading into the f MC meeting, 234 00:12:20,800 --> 00:12:23,319 Speaker 6: we're apt to stay there. I think the Fed there 235 00:12:23,360 --> 00:12:25,000 Speaker 6: is some risk that the Fed will move the dots 236 00:12:25,080 --> 00:12:28,320 Speaker 6: up a little bit. Abgail was mentioning that could be 237 00:12:28,360 --> 00:12:31,520 Speaker 6: a challenge for risk assets. We think that could be 238 00:12:31,559 --> 00:12:34,120 Speaker 6: a challenge for rates to get a little lifts to 239 00:12:34,160 --> 00:12:37,480 Speaker 6: the rates market. So that's on the duration front. On 240 00:12:37,679 --> 00:12:39,880 Speaker 6: other levers that we can push and pull and fixed income. 241 00:12:40,400 --> 00:12:44,280 Speaker 6: When it comes to credit sector allocation, we're overweight mortgages. 242 00:12:44,320 --> 00:12:47,880 Speaker 6: We think they still look cheap we'd like the extra 243 00:12:47,920 --> 00:12:51,319 Speaker 6: carrier given us. We're much more cautious and underweight high 244 00:12:51,360 --> 00:12:54,400 Speaker 6: yield corporates. We think that the spreads are very tight there, 245 00:12:54,760 --> 00:12:57,760 Speaker 6: compensation for the risk isn't so great. The fault risk 246 00:12:58,240 --> 00:13:02,040 Speaker 6: still rising incrementally. That's not to say that we're underweight 247 00:13:02,080 --> 00:13:04,320 Speaker 6: high because we think a recessions coming. It's really a 248 00:13:04,400 --> 00:13:08,920 Speaker 6: question of valuation and compensation for risk at the current levels. 249 00:13:10,320 --> 00:13:11,160 Speaker 7: We're a little more. 250 00:13:11,080 --> 00:13:13,760 Speaker 6: Constructive on ig Yes, we're a little underweight, but not 251 00:13:13,920 --> 00:13:18,280 Speaker 6: as much so, and we've added to emerging markets. I 252 00:13:18,280 --> 00:13:21,680 Speaker 6: think it's true that the market's base case of a 253 00:13:21,720 --> 00:13:26,640 Speaker 6: soft landing has become more compelling. If the FED walks 254 00:13:26,679 --> 00:13:31,520 Speaker 6: back tightening easing expectations aggressively, then I think that could 255 00:13:31,520 --> 00:13:34,240 Speaker 6: be a challenge for risk assets and it would start 256 00:13:34,240 --> 00:13:37,120 Speaker 6: to raise questions about whether or not the Fed can 257 00:13:37,320 --> 00:13:39,240 Speaker 6: ease into that soft lanning. What we think the Fed 258 00:13:39,320 --> 00:13:42,120 Speaker 6: is going to continue to signal easing just less than 259 00:13:42,120 --> 00:13:44,800 Speaker 6: they have been, and it's quite possible that they might 260 00:13:44,840 --> 00:13:47,439 Speaker 6: be considered the long run dot right now with the 261 00:13:47,480 --> 00:13:50,800 Speaker 6: way the markets are priced, that might be an opportunity 262 00:13:50,800 --> 00:13:53,320 Speaker 6: for them to walk through that door and maybe move 263 00:13:53,320 --> 00:13:56,040 Speaker 6: it from two to fifty median, maybe a little. 264 00:13:55,840 --> 00:13:57,400 Speaker 7: Higher two seventy five or something like that. 265 00:13:57,480 --> 00:14:00,240 Speaker 6: So we're watching that more of an academic exercise maybe, 266 00:14:00,320 --> 00:14:02,200 Speaker 6: but that affects expectations in the market. 267 00:14:02,440 --> 00:14:04,719 Speaker 4: Why has the last mile been so difficult to get 268 00:14:04,760 --> 00:14:05,360 Speaker 4: to the target? 269 00:14:08,440 --> 00:14:12,160 Speaker 6: I think the inflation problem which was so challenging, which 270 00:14:12,280 --> 00:14:15,720 Speaker 6: caused the FED to completely abandon the transitory argument and 271 00:14:15,760 --> 00:14:18,880 Speaker 6: get very aggressive, historically aggressive in the pace of tightening. 272 00:14:19,640 --> 00:14:24,600 Speaker 6: That inflation was born of a surge in aggregate demand 273 00:14:25,200 --> 00:14:31,400 Speaker 6: amid numerous supply problems, supply shocks, supply chain kinks, inadequate 274 00:14:31,480 --> 00:14:32,160 Speaker 6: labor supply. 275 00:14:32,680 --> 00:14:35,720 Speaker 7: So when demand rose for many things coming. 276 00:14:35,480 --> 00:14:38,440 Speaker 6: Out of the pandemic, especially services, travel and things like that, 277 00:14:38,800 --> 00:14:42,600 Speaker 6: and we had such constrained supply, including labor supply, the 278 00:14:42,640 --> 00:14:45,720 Speaker 6: only answer in any normal economic model is price must 279 00:14:45,840 --> 00:14:49,120 Speaker 6: rise to invite entry, to get people back to work, 280 00:14:49,160 --> 00:14:52,240 Speaker 6: to get firms to work out the kinks. So that 281 00:14:52,400 --> 00:14:56,960 Speaker 6: supply response is the first order aspect of the improvement 282 00:14:57,080 --> 00:15:00,000 Speaker 6: that brought the inflation down that has been addressed. 283 00:15:00,800 --> 00:15:01,080 Speaker 7: Now. 284 00:15:01,160 --> 00:15:04,320 Speaker 6: I think we're in a world where inflation expectations are 285 00:15:04,360 --> 00:15:07,640 Speaker 6: relatively well contained and benign, and that's because the Fed 286 00:15:07,680 --> 00:15:09,120 Speaker 6: acted as aggressively as they did. 287 00:15:09,400 --> 00:15:12,000 Speaker 7: Had they not done so, inflation expectations might have release searched. 288 00:15:12,880 --> 00:15:17,560 Speaker 6: This last mile of getting inflation back to target is tougher. 289 00:15:18,240 --> 00:15:20,760 Speaker 6: It's we have a better functioning economy, we have a 290 00:15:20,800 --> 00:15:25,520 Speaker 6: tight labor market. Sort of more traditional non dislocation models 291 00:15:25,560 --> 00:15:28,760 Speaker 6: of economics would suggest that maybe the economy does need 292 00:15:28,800 --> 00:15:32,520 Speaker 6: to slow down in order to get inflation to continue 293 00:15:32,560 --> 00:15:36,239 Speaker 6: to fall. The argument that the first mile was successful 294 00:15:36,280 --> 00:15:39,360 Speaker 6: on supply is very true, but the last mile might 295 00:15:39,440 --> 00:15:41,880 Speaker 6: require more of a slowdown, and that suggests the FED 296 00:15:41,960 --> 00:15:43,600 Speaker 6: might not ease as aggressively as once thought. 297 00:15:43,640 --> 00:15:46,000 Speaker 2: Ye all right, r J. Great stuff. Has always really 298 00:15:46,040 --> 00:15:48,080 Speaker 2: appreciate getting some of your time, r J. Gallow He's 299 00:15:48,080 --> 00:15:51,080 Speaker 2: a senior portfolio manager Federator Hermes. Joining us via. 300 00:15:51,080 --> 00:15:56,600 Speaker 1: Zoom You're listening to the Bloomberg Intelligence Podcast. Catch us 301 00:15:56,640 --> 00:15:59,520 Speaker 1: live weekdays at ten am Eastern on fo car Play 302 00:15:59,560 --> 00:16:02,720 Speaker 1: and then with the Bloomberg Business app. Listen on demand 303 00:16:02,760 --> 00:16:07,080 Speaker 1: wherever you get your podcasts, or watch us live on YouTube. 304 00:16:08,160 --> 00:16:10,640 Speaker 2: John, I know you're not on TikTok. 305 00:16:11,080 --> 00:16:14,880 Speaker 4: Can you just imagine, like the intersection of John Tucker 306 00:16:14,920 --> 00:16:18,840 Speaker 4: and TikTok? What a disaster. That would be stop laughing, Lisa. 307 00:16:19,440 --> 00:16:21,480 Speaker 2: Are you aware that there is this thing called TikTok. 308 00:16:21,800 --> 00:16:23,840 Speaker 4: Yeah, Charlie Pellett in the office shows it to me 309 00:16:23,880 --> 00:16:27,280 Speaker 4: all the time, so it's great, look you want videos 310 00:16:27,320 --> 00:16:29,600 Speaker 4: of I'm like, this is the stupidest thing I've ever seen. 311 00:16:29,720 --> 00:16:32,600 Speaker 2: But the big issue here for a lot of folks 312 00:16:32,720 --> 00:16:35,160 Speaker 2: is the ownership of TikTok owned my Byte Dance, which 313 00:16:35,160 --> 00:16:38,480 Speaker 2: has Chinese ownership. So now there's a whole thing about 314 00:16:38,880 --> 00:16:42,200 Speaker 2: do you want these TikTok company and Byte Dance having 315 00:16:42,280 --> 00:16:45,880 Speaker 2: so much consumer information for Americans? And that's kind of 316 00:16:45,920 --> 00:16:49,520 Speaker 2: the big issue here. So Matt Sheltenhelm he joins us. 317 00:16:49,520 --> 00:16:52,240 Speaker 2: He's a mediate litigation analyst, so he kind of does 318 00:16:52,280 --> 00:16:54,960 Speaker 2: all the legal side for all this stuff in the 319 00:16:55,000 --> 00:16:58,120 Speaker 2: media telecommunication space. He's a Bloomberg intelligence. He spaced down 320 00:16:58,120 --> 00:17:01,720 Speaker 2: in Washington, DC. Where else? Hey, Matt, give us the 321 00:17:01,800 --> 00:17:05,480 Speaker 2: latest on what's coming out of Washington, either from a 322 00:17:05,480 --> 00:17:09,560 Speaker 2: regulatory standpoint or maybe some movements up from Congress about 323 00:17:09,680 --> 00:17:15,000 Speaker 2: either forcing Bite Dance to cease operations here or you know, 324 00:17:15,040 --> 00:17:17,119 Speaker 2: maybe force the Chinese to sell it. Where are we? 325 00:17:18,000 --> 00:17:21,639 Speaker 8: Yeah, Paul, So some surprising momentum here on this issue. 326 00:17:21,720 --> 00:17:24,280 Speaker 8: This first came up about a year ago in March 327 00:17:24,359 --> 00:17:27,000 Speaker 8: when you when you'll remember, Congress had had a big 328 00:17:27,040 --> 00:17:31,760 Speaker 8: hearing with with TikTok. CEO showed Chew. It was really 329 00:17:31,800 --> 00:17:34,399 Speaker 8: a tough hearing, and I think a lot of people 330 00:17:34,440 --> 00:17:38,120 Speaker 8: thought it might lead to some drastic action sooner rather 331 00:17:38,200 --> 00:17:43,040 Speaker 8: than later. And then everything slowed down. But then sort 332 00:17:43,040 --> 00:17:46,920 Speaker 8: of out of nowhere, about ten days ago, the House 333 00:17:47,920 --> 00:17:52,840 Speaker 8: introduced a new bill, then quickly passed that bill out 334 00:17:52,880 --> 00:17:56,240 Speaker 8: of committee, and then passed it through the on the 335 00:17:56,280 --> 00:18:02,320 Speaker 8: whole House floor by a huge bipartisan majority. And basically 336 00:18:02,400 --> 00:18:04,760 Speaker 8: what this bill would do, if it were to clear 337 00:18:04,880 --> 00:18:07,600 Speaker 8: Congress and President Biden were to sign it, and if 338 00:18:07,600 --> 00:18:10,359 Speaker 8: it were to get through the courts, is to say 339 00:18:10,400 --> 00:18:17,879 Speaker 8: that unless Byteedance divest TikTok to a less sensitive owner, 340 00:18:18,880 --> 00:18:23,879 Speaker 8: that the application couldn't be be hosted by Internet hosts 341 00:18:23,920 --> 00:18:26,680 Speaker 8: in the United States, it couldn't be on app stores 342 00:18:26,840 --> 00:18:30,480 Speaker 8: in the United States, and there would be significant financial 343 00:18:30,560 --> 00:18:33,280 Speaker 8: penalties not for TikTok, but for those companies that would 344 00:18:33,320 --> 00:18:36,080 Speaker 8: host it or that would include it in its app 345 00:18:36,200 --> 00:18:39,719 Speaker 8: store if they were to ignore the legislation. 346 00:18:40,280 --> 00:18:42,800 Speaker 4: Well, we'll put on your Congress watching half for a moment. 347 00:18:42,840 --> 00:18:45,600 Speaker 4: What's the hold up in the Senate? What's the objection there? 348 00:18:46,160 --> 00:18:50,919 Speaker 8: Yeah, So, I mean it's amazing to see the bipartisan 349 00:18:51,520 --> 00:18:55,399 Speaker 8: support this has. You don't see legislation move three hundred 350 00:18:55,400 --> 00:18:57,840 Speaker 8: and fifty two to sixty five like we saw last 351 00:18:57,840 --> 00:19:02,520 Speaker 8: week in the House. You've seen on both sides say 352 00:19:02,560 --> 00:19:06,160 Speaker 8: they want this. You've seen Chuck Schumer in the past, 353 00:19:06,160 --> 00:19:08,800 Speaker 8: the Senate majority leader, say he likes the idea of 354 00:19:09,200 --> 00:19:14,080 Speaker 8: requiring a change in ownership of TikTok. So that's exactly 355 00:19:14,200 --> 00:19:17,720 Speaker 8: the question now. I think the hold up, though, is, Look, 356 00:19:17,800 --> 00:19:20,359 Speaker 8: this is an election year, and even though you've seen 357 00:19:20,359 --> 00:19:22,600 Speaker 8: President Biden say, look, get it. You know, if it 358 00:19:22,640 --> 00:19:25,359 Speaker 8: comes to my desk, I'll sign it, he also has 359 00:19:25,400 --> 00:19:29,280 Speaker 8: one hundred and fifty million Americans using this app, many 360 00:19:29,320 --> 00:19:32,280 Speaker 8: of them young people, at a time when you have 361 00:19:32,320 --> 00:19:36,439 Speaker 8: an election coming in November, when every vote matters, in 362 00:19:36,480 --> 00:19:41,040 Speaker 8: particular young people to President Biden. So I think this 363 00:19:41,760 --> 00:19:45,560 Speaker 8: legislation has a chance. I only give it a thirty 364 00:19:45,600 --> 00:19:49,879 Speaker 8: percent chance though this year, and that's exactly because of 365 00:19:49,960 --> 00:19:53,080 Speaker 8: the political risks of November. At a time when President 366 00:19:53,080 --> 00:19:57,760 Speaker 8: Biden doesn't want to risk a potential backlash from those 367 00:19:57,800 --> 00:20:02,280 Speaker 8: young voters. The Senate is controlled by Democrats. Senator Chuck 368 00:20:02,280 --> 00:20:06,320 Speaker 8: Schumer is the majority leader. He decides how quickly this moves, 369 00:20:06,640 --> 00:20:09,600 Speaker 8: and I think the looming election is a reason to 370 00:20:09,680 --> 00:20:13,320 Speaker 8: move slowly. But after that, after this election is out 371 00:20:13,359 --> 00:20:15,280 Speaker 8: of the way, I'd be a little more nervous if 372 00:20:15,280 --> 00:20:16,000 Speaker 8: I were TikTok. 373 00:20:16,440 --> 00:20:20,040 Speaker 2: So do we have any clear sense of what TikTok 374 00:20:20,280 --> 00:20:23,000 Speaker 2: and Byte dance, how they're approaching this at this point, 375 00:20:23,160 --> 00:20:25,040 Speaker 2: like what would they presumably do? 376 00:20:25,960 --> 00:20:29,200 Speaker 8: Yeah, so that's a great question. I think we've seen 377 00:20:29,280 --> 00:20:34,240 Speaker 8: indications from from China that it would not be willing 378 00:20:34,440 --> 00:20:37,960 Speaker 8: to support a divestiture. Now that could be could be 379 00:20:38,040 --> 00:20:43,879 Speaker 8: posturing on that end, but I think there's the possibility 380 00:20:43,880 --> 00:20:47,679 Speaker 8: that if the US passes this legislation that requires a 381 00:20:47,760 --> 00:20:51,720 Speaker 8: divestiture or else there's an effective ban, there's a real 382 00:20:51,760 --> 00:20:56,520 Speaker 8: possibility that China wouldn't allow any sort of divestiture like 383 00:20:56,640 --> 00:21:00,640 Speaker 8: that to happen. So you're inevitably in the result of 384 00:21:00,359 --> 00:21:04,440 Speaker 8: of a band. Of course, you're also in courts as 385 00:21:04,440 --> 00:21:08,000 Speaker 8: soon as Congress passes this, and you saw Montana pass 386 00:21:08,080 --> 00:21:11,159 Speaker 8: the TikTok ban last year it got tripped up in court. 387 00:21:11,600 --> 00:21:14,320 Speaker 8: You saw President Trump before he was against this, he 388 00:21:14,359 --> 00:21:19,119 Speaker 8: actually signed a band of TikTok that was tripped up 389 00:21:19,160 --> 00:21:21,879 Speaker 8: in the courts. So once this passes, you still have 390 00:21:21,920 --> 00:21:26,800 Speaker 8: a tough court challenge coming. And so TikTok's first line 391 00:21:26,800 --> 00:21:28,800 Speaker 8: of defense is going to be to see over this 392 00:21:29,119 --> 00:21:29,480 Speaker 8: all right. 393 00:21:29,520 --> 00:21:33,920 Speaker 4: So if this ultimately goes to the courts, You've got 394 00:21:33,960 --> 00:21:38,399 Speaker 4: to explain to me, what's the legitimate national security threat 395 00:21:38,720 --> 00:21:42,440 Speaker 4: of me going posting pictures of myself or a video 396 00:21:42,480 --> 00:21:46,800 Speaker 4: of myself, you know, redoing my bathroom or Lisa putting 397 00:21:46,840 --> 00:21:47,720 Speaker 4: on her mas scare. 398 00:21:48,640 --> 00:21:52,200 Speaker 8: That's exactly the question the courts are going to be asking. 399 00:21:52,240 --> 00:21:54,480 Speaker 8: And one of the curious things about when the House 400 00:21:54,640 --> 00:21:57,840 Speaker 8: voted on this in committee by that fifty to zero vote, 401 00:21:57,880 --> 00:22:00,000 Speaker 8: is that they went into closed second law. 402 00:22:00,440 --> 00:22:03,480 Speaker 2: Some audio, Matt Shuttingham, we lost some audio, young man. 403 00:22:03,600 --> 00:22:06,000 Speaker 2: This is when one of the first things I did 404 00:22:06,000 --> 00:22:08,359 Speaker 2: with Matt, we were seeing clients six seven, eight years ago, 405 00:22:09,400 --> 00:22:11,119 Speaker 2: we found out he had no cash in his pocket 406 00:22:11,240 --> 00:22:12,879 Speaker 2: and say, why do you have no how do you 407 00:22:12,920 --> 00:22:16,840 Speaker 2: walk in you live? You're up in DC, says nobody 408 00:22:16,840 --> 00:22:17,680 Speaker 2: carries cash? 409 00:22:18,200 --> 00:22:18,400 Speaker 5: What? 410 00:22:19,000 --> 00:22:21,360 Speaker 2: Yeah, everything's on your phone. I'm like, so you don't 411 00:22:21,359 --> 00:22:23,680 Speaker 2: have it was just crazy. That's when I first kind 412 00:22:23,680 --> 00:22:26,360 Speaker 2: of came into this. The kids don't have cash anymore 413 00:22:26,920 --> 00:22:30,160 Speaker 2: so so anyway, so that's kind of my ment shutting 414 00:22:30,160 --> 00:22:31,639 Speaker 2: holm story. But again, this is a big thing for 415 00:22:31,680 --> 00:22:33,320 Speaker 2: TikTok because. 416 00:22:33,160 --> 00:22:35,640 Speaker 4: Oh he didn't go away. Oh is either so your 417 00:22:35,680 --> 00:22:38,520 Speaker 4: I think your earpiece cut out. Oh you're being hacked 418 00:22:38,600 --> 00:22:41,640 Speaker 4: by the Chinese apparently. But Matt pickup, you were talking 419 00:22:41,680 --> 00:22:44,760 Speaker 4: about the I was asking about what in God's name 420 00:22:44,840 --> 00:22:47,760 Speaker 4: is the national security threat that's posed here that the 421 00:22:47,800 --> 00:22:50,159 Speaker 4: courts are ultimately going to have to look out and 422 00:22:50,200 --> 00:22:51,480 Speaker 4: determin We've got about a minute. 423 00:22:51,320 --> 00:22:54,760 Speaker 8: Left, absolutely so. So the House went into closed session 424 00:22:54,920 --> 00:22:56,960 Speaker 8: in committee you when it talked about this, so so 425 00:22:57,040 --> 00:23:00,639 Speaker 8: they kind of they were secret on the concerns that 426 00:23:00,720 --> 00:23:03,359 Speaker 8: motivated this. But then after they had that closed session, 427 00:23:03,400 --> 00:23:05,560 Speaker 8: all of a sudden it was fifty to zero voting 428 00:23:05,600 --> 00:23:08,560 Speaker 8: and support. So we don't exactly know. I think the 429 00:23:08,680 --> 00:23:11,880 Speaker 8: concern is that if this data is you know, not 430 00:23:12,000 --> 00:23:15,359 Speaker 8: just you looking at your you know, cat videos or 431 00:23:15,400 --> 00:23:17,800 Speaker 8: whatever it is, but you know, one hundred and fifty 432 00:23:17,840 --> 00:23:22,760 Speaker 8: million Americans everything that they are looking at all of 433 00:23:22,800 --> 00:23:26,520 Speaker 8: this flow of data going to China's let's China take 434 00:23:26,520 --> 00:23:28,639 Speaker 8: a look at it. There's also a concern on the 435 00:23:28,680 --> 00:23:32,520 Speaker 8: propaganda side that if China can impact sort of the 436 00:23:32,640 --> 00:23:37,240 Speaker 8: flow of videos, can they start to shape thinking, and 437 00:23:37,320 --> 00:23:41,639 Speaker 8: in particular in young people. So there's two sides of 438 00:23:41,680 --> 00:23:45,640 Speaker 8: the concern here, looking at the data about how we're 439 00:23:45,760 --> 00:23:50,080 Speaker 8: using it, and also influencing thought potentially by you know, 440 00:23:50,160 --> 00:23:54,840 Speaker 8: framing messages, by using an algorithm to promote certain ideas. 441 00:23:55,160 --> 00:23:56,960 Speaker 4: I know I'd like to shape the thought of young 442 00:23:57,000 --> 00:24:00,119 Speaker 4: people at this point, especially that time is pan the 443 00:24:00,119 --> 00:24:01,200 Speaker 4: youngsters in my house. 444 00:24:01,400 --> 00:24:03,240 Speaker 2: So Matt, following off on my story, how much cash 445 00:24:03,240 --> 00:24:04,359 Speaker 2: do you have in your pocket? Today? 446 00:24:05,160 --> 00:24:08,080 Speaker 8: Oh? Man, I see, I'm not walking around New York today. 447 00:24:08,280 --> 00:24:11,560 Speaker 8: You taught me when I'm there, I'll be ready today. 448 00:24:11,600 --> 00:24:13,920 Speaker 8: I'm still I still just got my credit He's. 449 00:24:13,840 --> 00:24:15,639 Speaker 2: Got the credit cards and the phone. So that's how 450 00:24:15,640 --> 00:24:17,760 Speaker 2: I do good. All right, Matt, thanks so much on this. 451 00:24:17,800 --> 00:24:19,800 Speaker 2: Matt is our go to guy and all this litigation 452 00:24:19,880 --> 00:24:23,640 Speaker 2: stuff about anything on the media entertainment front, and there's 453 00:24:23,640 --> 00:24:25,960 Speaker 2: a lot of litigation out there, and Matt's the attorney 454 00:24:26,000 --> 00:24:29,040 Speaker 2: that follows that. For Bloomberg Intelligence. He's based down in Washington, DC, 455 00:24:29,800 --> 00:24:33,040 Speaker 2: and investors really value his research on some of these big, 456 00:24:33,080 --> 00:24:37,000 Speaker 2: big issues, and TikTok is a big, big issue. 457 00:24:37,480 --> 00:24:41,359 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 458 00:24:41,440 --> 00:24:44,359 Speaker 1: weekdays at ten am Eastern on Apple card Play and 459 00:24:44,720 --> 00:24:47,400 Speaker 1: royd Otto with the Bloomberg Business App. You can also 460 00:24:47,480 --> 00:24:50,680 Speaker 1: listen live on Amazon Alexa from our flagship New York 461 00:24:50,720 --> 00:24:55,080 Speaker 1: station Just say Alexa playing Bloomberg eleven thirty. 462 00:24:56,040 --> 00:24:58,399 Speaker 2: Another way to play. I'm still going to broadcome sucks up. 463 00:24:58,560 --> 00:25:00,159 Speaker 2: You know, it's doubled in the last year. I mean, 464 00:25:00,160 --> 00:25:02,320 Speaker 2: that's another way. Maybe next guests can shit some late 465 00:25:02,359 --> 00:25:05,720 Speaker 2: on that. Michael Cogino joined US president and portfolio manager. 466 00:25:06,119 --> 00:25:09,640 Speaker 2: The firm is a permanent portfolio family of funds, joining 467 00:25:09,720 --> 00:25:13,840 Speaker 2: us from San Francisco via zoom This West Coast things. People. 468 00:25:14,119 --> 00:25:16,280 Speaker 2: They know what's going on out there and with the technology. 469 00:25:16,400 --> 00:25:19,320 Speaker 2: All right, Michael, give us your view here. You've been 470 00:25:19,359 --> 00:25:21,840 Speaker 2: doing this for a while. What do you think when 471 00:25:21,880 --> 00:25:25,359 Speaker 2: you see a company like in Vidia and the growth 472 00:25:25,440 --> 00:25:28,840 Speaker 2: is its experience and the stock price performance. What is 473 00:25:28,880 --> 00:25:30,240 Speaker 2: an old pro like you think about that? 474 00:25:31,680 --> 00:25:32,760 Speaker 5: Yeah, good morning guys. 475 00:25:33,160 --> 00:25:35,240 Speaker 9: Well you know, it's funny you mentioned in Video and 476 00:25:35,280 --> 00:25:40,120 Speaker 9: Broadcom because we own both, and look, I think there's 477 00:25:40,119 --> 00:25:43,240 Speaker 9: a reason investors are coming to these companies, you know, 478 00:25:43,280 --> 00:25:46,720 Speaker 9: the Magnificent seven four, whatever you want to call them. 479 00:25:47,560 --> 00:25:51,040 Speaker 9: Profit growth is there, revenue growth is there. Outlooks are strong, 480 00:25:51,359 --> 00:25:54,160 Speaker 9: There's a lot of demand in these places. And so 481 00:25:54,400 --> 00:25:56,760 Speaker 9: in an environment where there's some uncertainty with the broader 482 00:25:56,840 --> 00:25:58,960 Speaker 9: equity market, it makes sense that investors are going to 483 00:25:59,000 --> 00:26:04,240 Speaker 9: gravitate towards companies that are showing results Facebook, I mean, 484 00:26:04,280 --> 00:26:08,439 Speaker 9: you know whatever, And so what that has resulted in 485 00:26:08,560 --> 00:26:12,199 Speaker 9: is a little bit of upward concentration, obviously, and it 486 00:26:12,240 --> 00:26:16,160 Speaker 9: really is named specific as to valuation. I mean, some 487 00:26:16,200 --> 00:26:18,920 Speaker 9: would argue in Vidio certainly is not cheap, it's above 488 00:26:18,920 --> 00:26:22,720 Speaker 9: a market multiple. Same thing with Broadcom. But in the 489 00:26:22,760 --> 00:26:25,399 Speaker 9: tech world, you know, given the growth rates, given the 490 00:26:25,400 --> 00:26:30,400 Speaker 9: execution on the growth rates, they're not that unreasonable. Maybe 491 00:26:30,400 --> 00:26:34,560 Speaker 9: a little expensive, but in tech, you know, you're looking 492 00:26:34,640 --> 00:26:37,320 Speaker 9: to grow into a multiple overtimes. So it really depends 493 00:26:37,320 --> 00:26:38,960 Speaker 9: on the investor and how much they're willing to pay. 494 00:26:39,320 --> 00:26:42,440 Speaker 4: All right, to stretch a metaphor in terms of your 495 00:26:42,520 --> 00:26:46,119 Speaker 4: investment philosophy, you're driving a car in the winter, you 496 00:26:46,200 --> 00:26:48,440 Speaker 4: put snow tires on. If you're in the rain, maybe 497 00:26:48,520 --> 00:26:52,000 Speaker 4: rain tires. You're more of an all weather kind of guy, 498 00:26:52,040 --> 00:26:52,399 Speaker 4: aren't you. 499 00:26:54,119 --> 00:26:58,399 Speaker 9: Yes, yep, that would describe us. We're very diverse. I 500 00:26:58,400 --> 00:27:00,800 Speaker 9: mean we run for strategies and equ strategy and two 501 00:27:00,800 --> 00:27:03,239 Speaker 9: fixed income strategies, but we're most well known for our 502 00:27:03,280 --> 00:27:07,640 Speaker 9: all weather multi asset permanent portfolio, which is a big 503 00:27:07,640 --> 00:27:12,200 Speaker 9: diversification play. It assumes the investor can't predict the future accurately. 504 00:27:12,240 --> 00:27:14,360 Speaker 9: It wants exposure in a number of areas so that 505 00:27:14,560 --> 00:27:17,400 Speaker 9: the investor doesn't have to predict the future, and so 506 00:27:17,600 --> 00:27:20,520 Speaker 9: we invest in not only US and non US equities 507 00:27:20,520 --> 00:27:23,720 Speaker 9: in a variety of sectors, but also commodities, real estate, 508 00:27:23,800 --> 00:27:28,199 Speaker 9: precious metals, and like I said, fixed income US and 509 00:27:28,240 --> 00:27:28,840 Speaker 9: non US. 510 00:27:29,080 --> 00:27:32,280 Speaker 2: So, Michael, given that broad exposure to different asset classes, 511 00:27:32,320 --> 00:27:35,359 Speaker 2: what's kind of your allocation these days in that fund 512 00:27:35,359 --> 00:27:37,639 Speaker 2: in terms of the various asset classes, and maybe how 513 00:27:37,640 --> 00:27:39,159 Speaker 2: has that changed over time? 514 00:27:41,000 --> 00:27:45,679 Speaker 9: Well, we have target weights in six broad categories twenty 515 00:27:45,680 --> 00:27:49,960 Speaker 9: percent gold, five percent gold, and silver twenty percent five 516 00:27:49,960 --> 00:27:54,240 Speaker 9: percent silver. Two equity sleeves, a hard asset sleeve with 517 00:27:54,320 --> 00:27:58,399 Speaker 9: natural resources, commodities, energy, et cetera, fifteen percent, growth stocks 518 00:27:58,400 --> 00:28:01,960 Speaker 9: fifteen percent, thirty five percent, and what we call dollar assets, 519 00:28:02,000 --> 00:28:06,400 Speaker 9: which is investment grade debt, treasuries, agencies, other high quality debt, 520 00:28:06,600 --> 00:28:09,240 Speaker 9: and ten percent in Swiss frank assets typically the currency 521 00:28:09,320 --> 00:28:09,840 Speaker 9: or the bond. 522 00:28:09,880 --> 00:28:11,359 Speaker 5: As a non US play. 523 00:28:11,840 --> 00:28:15,680 Speaker 9: We are currently and we stay fairly close to those targets, 524 00:28:15,720 --> 00:28:17,000 Speaker 9: but we're never right on them. 525 00:28:17,040 --> 00:28:18,960 Speaker 5: It's not an indexing methodology. 526 00:28:19,680 --> 00:28:23,560 Speaker 9: We're currently overweight gold by a couple of percentage points, 527 00:28:23,720 --> 00:28:27,280 Speaker 9: We're overweight equities by several percentage points, probably a little 528 00:28:27,280 --> 00:28:32,159 Speaker 9: bit underweight fixed income, and in a nutshell, that's and 529 00:28:32,520 --> 00:28:35,719 Speaker 9: precious metals. I mentioned gold, Yeah, silver, we're probably right 530 00:28:35,760 --> 00:28:36,679 Speaker 9: around target weighting. 531 00:28:37,600 --> 00:28:40,080 Speaker 4: How much of that is downside protection. 532 00:28:42,320 --> 00:28:43,480 Speaker 5: Depends on your perspective. 533 00:28:43,520 --> 00:28:47,120 Speaker 9: I mean, some would argue that the precious metals, probably 534 00:28:47,120 --> 00:28:51,120 Speaker 9: the Swiss currency and Swiss government bonds, maybe some equity 535 00:28:51,440 --> 00:28:53,160 Speaker 9: names would be considered defensive. 536 00:28:53,680 --> 00:28:55,920 Speaker 5: So from our perspective, we look at it. 537 00:28:55,880 --> 00:29:00,640 Speaker 9: More as a broader, comprehensive, comprehensive definition of wealth. So 538 00:29:00,800 --> 00:29:03,280 Speaker 9: you know, the average investor their four O one K, 539 00:29:03,680 --> 00:29:06,040 Speaker 9: maybe they got a brokerage account. Their residents maybe a 540 00:29:06,040 --> 00:29:08,600 Speaker 9: second residence. But what we're trying to do is give 541 00:29:08,640 --> 00:29:13,040 Speaker 9: exposure beyond that commercial real estate and a variety of sectors, 542 00:29:13,040 --> 00:29:18,280 Speaker 9: for example, commodities, industrial metals, energy, precious metals. In that way, 543 00:29:18,560 --> 00:29:21,840 Speaker 9: the definition of wealth is broader, and we believe that 544 00:29:21,920 --> 00:29:25,400 Speaker 9: the investor is kind of under exposed in a broad 545 00:29:25,440 --> 00:29:28,240 Speaker 9: definition of wealth if they don't have exposure to some 546 00:29:28,320 --> 00:29:31,240 Speaker 9: of these asset classes, because they all do impact the 547 00:29:31,320 --> 00:29:35,680 Speaker 9: financial and economic system and thereby asset prices. So, you know, 548 00:29:35,720 --> 00:29:39,720 Speaker 9: we would argue that this sort of comprehensive diversification is 549 00:29:39,760 --> 00:29:45,640 Speaker 9: a great addition to somebody's already existing typical you know, 550 00:29:46,120 --> 00:29:47,200 Speaker 9: definitions of wealth. 551 00:29:48,200 --> 00:29:51,560 Speaker 2: So what's the biggest driver of your portfolio? What are 552 00:29:51,560 --> 00:29:53,560 Speaker 2: you looking at the most? Is it defed and what 553 00:29:53,560 --> 00:29:56,560 Speaker 2: they're going to do over the next uh cover several 554 00:29:56,600 --> 00:29:58,920 Speaker 2: cycles or what else kind of impacts your portfolio? 555 00:30:00,080 --> 00:30:02,120 Speaker 5: Well, it varies from time to time, but right now, 556 00:30:02,280 --> 00:30:03,320 Speaker 5: certainly it's the FED. 557 00:30:04,280 --> 00:30:07,240 Speaker 9: You know, I think the consensus is they're done, if 558 00:30:07,280 --> 00:30:10,080 Speaker 9: not close to done. The big question seems to be 559 00:30:10,160 --> 00:30:13,240 Speaker 9: when will they start cutting by how much? Or even 560 00:30:13,320 --> 00:30:15,560 Speaker 9: you know, with the data recently in the last couple 561 00:30:15,600 --> 00:30:18,360 Speaker 9: of months, here will they cut at all, and I 562 00:30:18,400 --> 00:30:21,240 Speaker 9: think there's smart people on all sides of that debate. 563 00:30:22,240 --> 00:30:23,840 Speaker 5: We would sort of take the position that. 564 00:30:23,760 --> 00:30:26,000 Speaker 9: We're not going to try to predict the outcome, but 565 00:30:26,320 --> 00:30:29,040 Speaker 9: we're going to have investments in a variety of areas 566 00:30:29,040 --> 00:30:31,800 Speaker 9: so that regardless of what happens, we've got some winners 567 00:30:31,880 --> 00:30:35,120 Speaker 9: and maybe mitigating losses. So my own opinion on this 568 00:30:36,320 --> 00:30:39,120 Speaker 9: is that, you know, the the economy is growing, we're 569 00:30:39,120 --> 00:30:41,320 Speaker 9: not in a recession. We may have a soft landing 570 00:30:41,400 --> 00:30:43,280 Speaker 9: or no landing, or we may be inching to some 571 00:30:43,360 --> 00:30:46,680 Speaker 9: sort of slow down. We just can't tell. The growth 572 00:30:46,760 --> 00:30:49,760 Speaker 9: numbers at the moment, and the low unemployment with consumer 573 00:30:49,840 --> 00:30:53,600 Speaker 9: spending allow the FED to be cautious and they don't 574 00:30:53,600 --> 00:30:56,120 Speaker 9: have to start cutting rates right away, and we could 575 00:30:56,120 --> 00:30:59,440 Speaker 9: exist in a higher for longer environment and still grow. 576 00:31:00,000 --> 00:31:02,880 Speaker 9: Go back to the nineteen eighties, you know, when inflation 577 00:31:03,040 --> 00:31:05,440 Speaker 9: was coming down from really high levels, we still had 578 00:31:05,480 --> 00:31:08,400 Speaker 9: a period where the inflation rate was mid single digits 579 00:31:08,720 --> 00:31:12,600 Speaker 9: coming down, and the economy still grew during a large 580 00:31:12,640 --> 00:31:13,480 Speaker 9: part of that decade. 581 00:31:13,560 --> 00:31:15,120 Speaker 5: So it is possible now. 582 00:31:15,160 --> 00:31:20,200 Speaker 9: Circumstances are different nowadays, and the rates now from a 583 00:31:20,240 --> 00:31:23,160 Speaker 9: perception standpoint, are a lot, how higher relative to what 584 00:31:23,200 --> 00:31:25,280 Speaker 9: we lived with in the last twenty years, so you 585 00:31:25,320 --> 00:31:25,640 Speaker 9: got to. 586 00:31:25,560 --> 00:31:26,600 Speaker 5: Take that into consideration. 587 00:31:27,080 --> 00:31:30,840 Speaker 9: But the current economic factors are allowing the FED to 588 00:31:30,880 --> 00:31:35,520 Speaker 9: probably watchful weight. Obviously growth employment is a big factor 589 00:31:35,520 --> 00:31:37,520 Speaker 9: we're looking at, because if that falls over, I think 590 00:31:37,600 --> 00:31:41,120 Speaker 9: you do move very quickly towards a slow down. You've 591 00:31:41,120 --> 00:31:44,760 Speaker 9: got the presidential progressional elections coming up, We've got geoptical 592 00:31:44,840 --> 00:31:48,240 Speaker 9: uncertainties in several areas around the globe. So we are 593 00:31:48,280 --> 00:31:50,720 Speaker 9: looking at a lot of issues and there are a 594 00:31:50,760 --> 00:31:53,440 Speaker 9: lot of questions that need to be answered which argue 595 00:31:53,480 --> 00:31:54,560 Speaker 9: for a diversified approach. 596 00:31:54,600 --> 00:31:56,160 Speaker 2: All right, Michael, thank you so much for joining us. 597 00:31:56,200 --> 00:31:59,200 Speaker 2: We really appreciated. Michael Cogino, President, portfolio manager of the 598 00:31:59,280 --> 00:32:02,120 Speaker 2: Permanent Folio family of funds. 599 00:32:03,880 --> 00:32:07,760 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 600 00:32:07,840 --> 00:32:10,920 Speaker 1: weekdays at ten am Eastern on Apocar playing and Broud 601 00:32:10,920 --> 00:32:14,040 Speaker 1: Auto with the Bloomberg Business app. Listen on demand wherever 602 00:32:14,080 --> 00:32:18,320 Speaker 1: you get your podcasts, or watch us live on YouTube. 603 00:32:18,880 --> 00:32:22,440 Speaker 2: NYCB New York Community Bank down another seven and a 604 00:32:22,480 --> 00:32:26,200 Speaker 2: half percent today, down sixty five percent year to date. 605 00:32:27,280 --> 00:32:29,760 Speaker 2: Is it an NYCB problem or do we have some 606 00:32:29,800 --> 00:32:33,520 Speaker 2: more systemic problems for some of the regional banks. For 607 00:32:33,600 --> 00:32:36,080 Speaker 2: that return to Herman Chen. He covers all the regional 608 00:32:36,120 --> 00:32:39,880 Speaker 2: banks for Bloomberg Intelligence. Let's start first, Herman with any 609 00:32:39,920 --> 00:32:43,040 Speaker 2: jointions here in our studio. NYCB, what's the news today 610 00:32:43,080 --> 00:32:43,880 Speaker 2: pushing the stock down? 611 00:32:44,040 --> 00:32:47,600 Speaker 10: Yeah, so NYCB caught and analyst down grade earlier this 612 00:32:47,680 --> 00:32:55,560 Speaker 10: morning excited ongoing credit issues with potential losses in regulated 613 00:32:55,560 --> 00:33:00,120 Speaker 10: and apartment commercial real estate really hampering the earnings power. 614 00:32:59,800 --> 00:33:00,520 Speaker 2: For the bank. 615 00:33:01,160 --> 00:33:05,400 Speaker 4: So let's get back to the forty thousand foot view. 616 00:33:06,320 --> 00:33:10,400 Speaker 4: The smaller banks like New York Community Bank in trouble 617 00:33:10,440 --> 00:33:15,560 Speaker 4: because of real estate, whether it be commercial or other 618 00:33:15,640 --> 00:33:19,920 Speaker 4: types of housing. Explain how that all works. They lend 619 00:33:19,920 --> 00:33:23,520 Speaker 4: out money to a building a commercial real estate, and 620 00:33:23,760 --> 00:33:25,880 Speaker 4: you know it looks like they don't have tenants anymore, 621 00:33:25,960 --> 00:33:29,000 Speaker 4: so they the loan doesn't get paid back or what. Yeah, 622 00:33:29,000 --> 00:33:31,440 Speaker 4: that's right, Talk to me like I'm your German Shepherds. 623 00:33:32,040 --> 00:33:34,120 Speaker 2: So there's two issues you can look at that. 624 00:33:34,480 --> 00:33:38,000 Speaker 10: Look at all these Class B and C type office 625 00:33:38,000 --> 00:33:40,040 Speaker 10: buildings here in New York City has a good example 626 00:33:40,120 --> 00:33:44,200 Speaker 10: where the work from home phenomenon has left a. 627 00:33:44,120 --> 00:33:45,920 Speaker 2: Lot of them has not. 628 00:33:47,880 --> 00:33:51,720 Speaker 10: Brought a lot of cash flow in for these owners 629 00:33:51,720 --> 00:33:55,000 Speaker 10: of these properties, right because there some tenants are leaving. 630 00:33:55,800 --> 00:34:01,360 Speaker 10: There's retail space that's leaving, so that's exacerbated some of 631 00:34:01,400 --> 00:34:07,640 Speaker 10: the issues with cash flows for these borrowers as they 632 00:34:08,120 --> 00:34:10,440 Speaker 10: refinance over the next few years. And you've seen that 633 00:34:10,520 --> 00:34:14,160 Speaker 10: already where higher interest rates and the lower cash flows 634 00:34:14,239 --> 00:34:16,279 Speaker 10: is a bit of a double whammy for them. So 635 00:34:16,440 --> 00:34:19,080 Speaker 10: it's harder to refinance and they don't have a lot 636 00:34:19,120 --> 00:34:22,680 Speaker 10: of cash coming in, so it's difficult to repay these loans. 637 00:34:22,719 --> 00:34:25,520 Speaker 4: And it can in some circumstances they just walk away 638 00:34:25,520 --> 00:34:26,160 Speaker 4: from the building. 639 00:34:26,440 --> 00:34:30,280 Speaker 10: There's some circumstances that we've seen, like larger property owners 640 00:34:30,360 --> 00:34:33,759 Speaker 10: like Brookfield and Blackstone have walked away from buildings that 641 00:34:33,840 --> 00:34:37,520 Speaker 10: just aren't tenable anymore. If they didn't walk away, there 642 00:34:37,520 --> 00:34:41,040 Speaker 10: would be more losses going forward. So they make a 643 00:34:41,080 --> 00:34:44,719 Speaker 10: calculation and say we're giving the keys back because it's 644 00:34:44,719 --> 00:34:48,840 Speaker 10: better for us economically to do that rare than supporting 645 00:34:48,840 --> 00:34:50,600 Speaker 10: this building that has wee cash flows. 646 00:34:50,800 --> 00:34:52,720 Speaker 2: So I'm looking at this spider s and p Regional 647 00:34:52,760 --> 00:34:55,640 Speaker 2: Banking ETF. It's off one percent today, off nine percent 648 00:34:55,680 --> 00:34:58,920 Speaker 2: year to date, but up thirteen percent from a trailing 649 00:34:58,920 --> 00:35:01,160 Speaker 2: twelve month basis, they did kind of come off the 650 00:35:01,280 --> 00:35:06,359 Speaker 2: very very bottom. I guess is NYCB. It sounds to 651 00:35:06,440 --> 00:35:11,040 Speaker 2: me it's specific to NYCB okay right now. But on 652 00:35:11,080 --> 00:35:13,560 Speaker 2: the flip side, I also understand from smart people like 653 00:35:13,600 --> 00:35:16,280 Speaker 2: you that if there to the extent there is commercial 654 00:35:16,320 --> 00:35:20,439 Speaker 2: real estate exposure, it is primarily with small and mid 655 00:35:20,480 --> 00:35:23,239 Speaker 2: sized lenders as opposed to JP Morgan's or the Bank 656 00:35:23,239 --> 00:35:25,240 Speaker 2: of Americas of the world. That's right, Okay. 657 00:35:25,280 --> 00:35:28,759 Speaker 10: So there's two issues that we have pointed to in 658 00:35:28,800 --> 00:35:34,279 Speaker 10: our research, the actual office and commercial real estate exposures 659 00:35:34,280 --> 00:35:36,799 Speaker 10: for the largest banks like JP Morgan, and you can 660 00:35:36,880 --> 00:35:40,600 Speaker 10: throw in the largest regional banks like a US Bank, PNC, Trust, 661 00:35:40,680 --> 00:35:41,480 Speaker 10: Fifth Third. 662 00:35:41,280 --> 00:35:41,760 Speaker 2: Et cetera. 663 00:35:43,040 --> 00:35:45,640 Speaker 10: There their exposure to commercial real city is much smaller 664 00:35:46,080 --> 00:35:50,719 Speaker 10: compared to smaller regionals and community banks, and growth in 665 00:35:51,000 --> 00:35:55,520 Speaker 10: commercial real estate since the pandemic has been largely focused 666 00:35:55,560 --> 00:35:59,520 Speaker 10: on the smaller banks, and for the largest US banks 667 00:35:59,520 --> 00:36:02,040 Speaker 10: it's grown about two or three percent since the pandemic, 668 00:36:02,239 --> 00:36:05,240 Speaker 10: whereas it's upwards of twenty percent for a lot of 669 00:36:05,080 --> 00:36:08,800 Speaker 10: the smaller banks. So the concentration risk is more focused 670 00:36:08,840 --> 00:36:12,680 Speaker 10: on the smaller banks and you've seen that the uptail nicely. 671 00:36:13,560 --> 00:36:16,680 Speaker 10: If you compare the performance of the BKX, which is 672 00:36:16,719 --> 00:36:19,480 Speaker 10: the index for the largest banks, versus the KRE, which 673 00:36:19,520 --> 00:36:23,440 Speaker 10: is the index for the regional banks as a whole, 674 00:36:23,800 --> 00:36:25,839 Speaker 10: there's been a divergence over the past year today. 675 00:36:26,200 --> 00:36:29,960 Speaker 4: So as the situation gets worse, do the regulators who 676 00:36:30,040 --> 00:36:33,960 Speaker 4: oversee the banks, do they increase the regulation, therefore making 677 00:36:34,000 --> 00:36:36,480 Speaker 4: the situations spiral even further. 678 00:36:36,800 --> 00:36:41,600 Speaker 10: What you've seen some tougher regulations, at least proposals come 679 00:36:41,640 --> 00:36:46,240 Speaker 10: out since the SVB first Republic signature failures last March, 680 00:36:47,280 --> 00:36:50,439 Speaker 10: and that's still going through, you know, the sausage making 681 00:36:50,520 --> 00:36:53,680 Speaker 10: process at the Federal Reserve, and there's been pushed back 682 00:36:53,760 --> 00:36:57,279 Speaker 10: by the largest banks because they think the regulations. 683 00:36:56,800 --> 00:36:57,600 Speaker 2: Are too onerous. 684 00:36:58,200 --> 00:37:02,719 Speaker 10: So there and Palace talked about saying that as it's 685 00:37:02,719 --> 00:37:06,560 Speaker 10: currently proposed and may not pass, muster for the Fed, 686 00:37:06,719 --> 00:37:10,040 Speaker 10: so there's not one hundred percent buy in from the 687 00:37:10,080 --> 00:37:12,399 Speaker 10: top of the Fed. So that means that there could 688 00:37:12,400 --> 00:37:15,440 Speaker 10: potentially be some watering down of those regulations. 689 00:37:16,000 --> 00:37:18,960 Speaker 2: So if I'm an analyst, is it fairly easy for 690 00:37:19,000 --> 00:37:22,040 Speaker 2: me to look at a bank and say how much 691 00:37:22,040 --> 00:37:25,320 Speaker 2: commercial real estate or how much maybe office real estate exposure. 692 00:37:25,360 --> 00:37:28,359 Speaker 2: It has visibly everybody else and I can mark that 693 00:37:28,600 --> 00:37:31,480 Speaker 2: stock down or up accordingly though we are Are we 694 00:37:31,520 --> 00:37:32,160 Speaker 2: already there? 695 00:37:32,440 --> 00:37:32,680 Speaker 5: Yeah? 696 00:37:32,719 --> 00:37:33,040 Speaker 8: We are. 697 00:37:33,840 --> 00:37:38,720 Speaker 10: I think we've seen that in the trading action since 698 00:37:39,040 --> 00:37:42,759 Speaker 10: NYCB reported their fourth quarter results that really surprised the 699 00:37:42,800 --> 00:37:47,359 Speaker 10: street that the industry has been pretty resilient, and I 700 00:37:47,360 --> 00:37:51,160 Speaker 10: think everybody has started to realize that not every office 701 00:37:51,800 --> 00:37:56,239 Speaker 10: and not every apartments lender is the same, and so 702 00:37:56,360 --> 00:38:00,640 Speaker 10: there's been more discerning trading for a lot of these 703 00:38:00,719 --> 00:38:04,600 Speaker 10: regional banks, which is good because last March it was 704 00:38:05,040 --> 00:38:08,720 Speaker 10: all regional banks are going to fail, and now we're 705 00:38:08,760 --> 00:38:10,880 Speaker 10: not in that sort of scenario any longer. 706 00:38:11,200 --> 00:38:13,920 Speaker 4: Unless we heard it was Steve Minution to the rescue 707 00:38:14,120 --> 00:38:19,600 Speaker 4: with the billion dollars from other investors. Right, where's that stand? 708 00:38:19,600 --> 00:38:21,400 Speaker 4: And is a billion dollars that not for? 709 00:38:21,960 --> 00:38:26,360 Speaker 10: Yeah, that's that's the ultimate question, right. So the billion 710 00:38:26,400 --> 00:38:30,600 Speaker 10: dollars injection capital injection really and stilled a bit more 711 00:38:30,680 --> 00:38:34,879 Speaker 10: confidence of the bank. It brings their capital ratios back 712 00:38:34,920 --> 00:38:38,040 Speaker 10: to peer levels after the loss in the fourth quarter. 713 00:38:38,600 --> 00:38:41,680 Speaker 10: It gives them some room to build up their bad 714 00:38:41,719 --> 00:38:47,920 Speaker 10: debt reserves for future loan losses in their apartment lending business. 715 00:38:47,840 --> 00:38:49,040 Speaker 7: But is it enough. 716 00:38:49,080 --> 00:38:53,879 Speaker 10: It's still up in the air. The downgrades sort from 717 00:38:53,960 --> 00:38:56,480 Speaker 10: an analyst today pointed to there's going to be credit losses, 718 00:38:56,520 --> 00:39:00,320 Speaker 10: and there's there's a lot of uncertainty with their earnings 719 00:39:00,360 --> 00:39:03,600 Speaker 10: because there's going to be higher expenses. Their margin is 720 00:39:03,600 --> 00:39:07,800 Speaker 10: going to be compressed over the next several quarters, and 721 00:39:08,320 --> 00:39:10,479 Speaker 10: they're not going to grow their loan portfolio, they're actually 722 00:39:10,560 --> 00:39:14,480 Speaker 10: shrinking it. So lots still lots of questions and really 723 00:39:14,520 --> 00:39:18,200 Speaker 10: it will depend on where interest rates go and how 724 00:39:18,280 --> 00:39:20,719 Speaker 10: their credit quality holds up, and not a lot of 725 00:39:20,719 --> 00:39:21,640 Speaker 10: answers at this point. 726 00:39:21,920 --> 00:39:26,360 Speaker 2: So for the quality smaller regional sized banks are, is 727 00:39:26,360 --> 00:39:28,959 Speaker 2: there smart buying in those things at the moment, longer 728 00:39:29,000 --> 00:39:31,359 Speaker 2: term buying or just that trade off the bottom or. 729 00:39:31,560 --> 00:39:36,040 Speaker 10: Yeah, I think you've seen some stability for a lot 730 00:39:36,080 --> 00:39:38,919 Speaker 10: of the banks, the smaller ones that still have room 731 00:39:39,400 --> 00:39:44,200 Speaker 10: to perform and outperform with credit qualities is going to 732 00:39:44,600 --> 00:39:48,440 Speaker 10: be the keynot the bank. Investors aren't really focused on 733 00:39:48,560 --> 00:39:51,879 Speaker 10: growing the balance sheet at this point. It's more do 734 00:39:51,960 --> 00:39:56,839 Speaker 10: you show stable credit performance not a lot of charge offs, 735 00:39:56,880 --> 00:39:59,920 Speaker 10: and banks that have historically had strong credit on the 736 00:40:00,040 --> 00:40:06,320 Speaker 10: that front, like a Western Alliance, M and T Regions, 737 00:40:06,360 --> 00:40:10,359 Speaker 10: et cetera. Those banks seem to be better positioned for 738 00:40:10,520 --> 00:40:11,480 Speaker 10: the current bathroom. 739 00:40:11,560 --> 00:40:13,880 Speaker 4: How many people do we know who are looking for 740 00:40:14,000 --> 00:40:16,640 Speaker 4: housing in New York and can't find it and you 741 00:40:16,719 --> 00:40:19,640 Speaker 4: look across the street, Oh there's a vacant building. Well, 742 00:40:19,680 --> 00:40:21,719 Speaker 4: there's a vacant building, whether. 743 00:40:21,600 --> 00:40:22,560 Speaker 7: There's something not good. 744 00:40:22,760 --> 00:40:24,600 Speaker 4: You know, it does not compute. 745 00:40:24,800 --> 00:40:28,800 Speaker 2: I know, can you convert retail space and office space 746 00:40:28,920 --> 00:40:32,759 Speaker 2: into residential And what the experts tell me is for 747 00:40:32,920 --> 00:40:34,040 Speaker 2: some of it you can, But. 748 00:40:35,120 --> 00:40:37,759 Speaker 4: I mean you just think about every apartment would need 749 00:40:37,800 --> 00:40:40,600 Speaker 4: its own plumbing. In a commercial building, maybe there's like 750 00:40:40,680 --> 00:40:42,440 Speaker 4: one or two bathrooms on each floor. 751 00:40:42,560 --> 00:40:45,480 Speaker 2: So I don't know, I don't know, but that's an infrastructure. 752 00:40:45,640 --> 00:40:47,200 Speaker 2: It's a lot tougher, all right, Herman Chan, thank you 753 00:40:47,239 --> 00:40:49,160 Speaker 2: so much. We appreciate it. Hermit Change. He covers all 754 00:40:49,520 --> 00:40:53,759 Speaker 2: the regional banks force for Bloomberg Intelligence NYCB getting a 755 00:40:53,800 --> 00:40:57,240 Speaker 2: downgrade from Raymond James today that stocks off seven percent, 756 00:40:57,239 --> 00:40:59,640 Speaker 2: adding to the woes there NYCB. 757 00:41:00,480 --> 00:41:05,000 Speaker 1: This is the Bloomberg Intelligence podcast, available on Apples, Spotify, 758 00:41:05,200 --> 00:41:08,399 Speaker 1: and anywhere else you get your podcasts. Listen live each 759 00:41:08,400 --> 00:41:11,800 Speaker 1: weekday ten am to noon Eastern on Bloomberg dot com, 760 00:41:11,920 --> 00:41:15,320 Speaker 1: the iHeartRadio app tune In, and the Bloomberg Business app. 761 00:41:15,440 --> 00:41:18,440 Speaker 1: You can also watch us live every weekday on YouTube 762 00:41:18,640 --> 00:41:20,520 Speaker 1: and always on the Bloomberg terminal