1 00:00:00,080 --> 00:00:02,840 Speaker 1: We bring you news and analysis every day on the 2 00:00:02,880 --> 00:00:06,840 Speaker 1: Bloomberg Surveillance Podcast. But now you can get the latest 3 00:00:06,880 --> 00:00:11,639 Speaker 1: news on demand whenever you want. Subscribe to Bloomberg News 4 00:00:11,640 --> 00:00:14,400 Speaker 1: Now to get the latest headlines at the click of 5 00:00:14,440 --> 00:00:18,880 Speaker 1: a button. Get informed on your schedule. You can listen 6 00:00:18,960 --> 00:00:22,720 Speaker 1: and subscribe to Bloomberg News Now on the Bloomberg Business App, 7 00:00:22,760 --> 00:00:27,720 Speaker 1: Bloomberg dot Com plus Apple, Spotify, and anywhere else you 8 00:00:27,800 --> 00:00:35,800 Speaker 1: get your podcasts. Search Bloomberg News Now and subscribe today. 9 00:00:37,800 --> 00:00:41,160 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 10 00:00:41,159 --> 00:00:45,000 Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day 11 00:00:45,040 --> 00:00:49,520 Speaker 1: for insight from the best and economics, geopolitics, finance and investment. 12 00:00:49,960 --> 00:00:54,760 Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 13 00:00:54,960 --> 00:00:59,280 Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com, 14 00:00:59,320 --> 00:01:03,120 Speaker 1: the Bloomberg Criminal and the Bloomberg Business App. This is 15 00:01:03,160 --> 00:01:06,960 Speaker 1: without the question for this week the interview. For those 16 00:01:07,000 --> 00:01:10,840 Speaker 1: of you on radio and television worldwide are saying forget 17 00:01:10,920 --> 00:01:16,080 Speaker 1: the fancy talk talk common sense. Robert Dahl has decades 18 00:01:16,400 --> 00:01:19,520 Speaker 1: of experience enjoying losses in the equity markets. He's a 19 00:01:19,600 --> 00:01:24,360 Speaker 1: crossmark global investments and is a needed conversation this morning. 20 00:01:24,440 --> 00:01:28,880 Speaker 1: I want you to address the retirees, the institutions who 21 00:01:28,920 --> 00:01:32,480 Speaker 1: are very forty within the sixty forty split. You and 22 00:01:32,560 --> 00:01:35,680 Speaker 1: I have never witnessed price declines in bonds like this. 23 00:01:36,280 --> 00:01:38,600 Speaker 1: What is the to do for the people that have 24 00:01:38,680 --> 00:01:40,200 Speaker 1: been hammered in bonds? 25 00:01:40,600 --> 00:01:42,520 Speaker 2: As you know, if we don't get a nice rally 26 00:01:42,560 --> 00:01:44,280 Speaker 2: in the bond market in the fourth quarter, it will 27 00:01:44,280 --> 00:01:47,200 Speaker 2: be the third year of losses for a tenured treasury. 28 00:01:47,360 --> 00:01:50,400 Speaker 2: That has never happened before in history. So these people 29 00:01:50,520 --> 00:01:52,800 Speaker 2: are sticker shocks, shell shock, whatever. 30 00:01:52,600 --> 00:01:53,840 Speaker 1: They want to they shift equities. 31 00:01:54,360 --> 00:01:56,520 Speaker 2: Look, depends on your time horizon. If you have a 32 00:01:56,520 --> 00:01:59,080 Speaker 2: long time horizon, you're sixty five and you're retiring in 33 00:01:59,120 --> 00:02:01,120 Speaker 2: your good health, have more equities here? 34 00:02:01,160 --> 00:02:01,800 Speaker 1: Always looking at me? 35 00:02:02,520 --> 00:02:05,000 Speaker 3: Well, you say, do you shift to equities? Let's dig 36 00:02:05,080 --> 00:02:07,960 Speaker 3: deeper into that. Do you realize these losses in the 37 00:02:07,960 --> 00:02:10,560 Speaker 3: bond market, that's essentially the question Tom's asking here, or 38 00:02:10,600 --> 00:02:11,600 Speaker 3: do you sit on them? 39 00:02:11,960 --> 00:02:12,200 Speaker 1: Yeah? 40 00:02:12,240 --> 00:02:14,679 Speaker 2: So I don't think you run for the hills in 41 00:02:14,720 --> 00:02:16,440 Speaker 2: the bond market. I don't think we've seen the high 42 00:02:16,520 --> 00:02:19,560 Speaker 2: end yield. Look, you've been debating wire yields up. They're 43 00:02:19,600 --> 00:02:21,440 Speaker 2: up because the economy is a little bited, and expected 44 00:02:21,600 --> 00:02:25,040 Speaker 2: inflation's nowhere close to two and is stubborn, and you 45 00:02:25,160 --> 00:02:28,000 Speaker 2: got the supply demand thing that rears its ugly head 46 00:02:28,000 --> 00:02:30,360 Speaker 2: every once in a while. That's not an environment to 47 00:02:30,360 --> 00:02:32,160 Speaker 2: see a three handle in at ten year treasury. 48 00:02:32,320 --> 00:02:35,880 Speaker 4: And right now we're wondering whether bank earnings are indicative 49 00:02:35,919 --> 00:02:38,680 Speaker 4: of the broader economy or whether they're an outlier at 50 00:02:38,680 --> 00:02:41,600 Speaker 4: a time where they're consolidating their business in a smaller 51 00:02:41,680 --> 00:02:45,639 Speaker 4: number of high income individuals. What's your view. How much 52 00:02:45,639 --> 00:02:48,520 Speaker 4: of a tell has the early earnings report been. 53 00:02:48,919 --> 00:02:51,720 Speaker 2: That's a great, great point you're making, that is to say, 54 00:02:51,840 --> 00:02:54,919 Speaker 2: bank airrings are probably a little less useful than usual, 55 00:02:55,240 --> 00:02:59,120 Speaker 2: a little less useful for overall earnings. My big surprise 56 00:02:59,200 --> 00:03:01,160 Speaker 2: you touched on is second ago is we haven't seen 57 00:03:01,160 --> 00:03:06,240 Speaker 2: more consolidation in the banking industry post the debacle in April. 58 00:03:06,400 --> 00:03:08,679 Speaker 2: My thought was we're going to see more bank combinations, 59 00:03:08,680 --> 00:03:10,960 Speaker 2: and there's been. There's been precious few. There will be 60 00:03:11,000 --> 00:03:13,560 Speaker 2: more to come. We need fewer banks. 61 00:03:13,680 --> 00:03:15,560 Speaker 4: At this point, though, given the fact that you're still 62 00:03:15,600 --> 00:03:18,480 Speaker 4: seeing credit extended in the economy, do you think to 63 00:03:18,520 --> 00:03:21,360 Speaker 4: put these two ideas together with the bond market, that 64 00:03:21,480 --> 00:03:24,200 Speaker 4: bond deals could go even higher on the long end, 65 00:03:24,240 --> 00:03:27,160 Speaker 4: and that actually Meghan Graper is correct, and the bond 66 00:03:27,200 --> 00:03:29,200 Speaker 4: market is telling the FED they need to do more 67 00:03:29,280 --> 00:03:31,079 Speaker 4: on the front end, and not that they have to 68 00:03:31,160 --> 00:03:32,119 Speaker 4: let the long end do the work. 69 00:03:32,360 --> 00:03:33,000 Speaker 1: I agree with you. 70 00:03:33,639 --> 00:03:35,520 Speaker 2: Is the long end doing some of the Fed's work 71 00:03:35,560 --> 00:03:38,440 Speaker 2: for them, Absolutely, but that's proving not to be enough. 72 00:03:39,200 --> 00:03:41,360 Speaker 2: The Fed, I don't believe is done. You know, we 73 00:03:41,480 --> 00:03:44,480 Speaker 2: said along either November or December. I think it's more 74 00:03:44,560 --> 00:03:47,000 Speaker 2: likely December. But I still want to come to the point. 75 00:03:47,440 --> 00:03:49,640 Speaker 2: More important than when the FED. If the FED raises 76 00:03:49,760 --> 00:03:52,480 Speaker 2: rates again, is what about the impact from zero to 77 00:03:52,520 --> 00:03:54,760 Speaker 2: five and a quarter In the last eighteen months, we 78 00:03:54,800 --> 00:03:56,880 Speaker 2: have not seen the full impact of that lease. And 79 00:03:56,960 --> 00:03:58,040 Speaker 2: I think that's still in front of us. 80 00:03:58,160 --> 00:03:59,920 Speaker 3: Let's talk about the banks and build on the white 81 00:04:00,080 --> 00:04:03,160 Speaker 3: Tom start this conversation. Many of these banks are sitting 82 00:04:03,160 --> 00:04:06,080 Speaker 3: on some securities very long dated well when rates were 83 00:04:06,120 --> 00:04:09,560 Speaker 3: very low. Now rates are higher, They're underwater, is what 84 00:04:09,720 --> 00:04:12,119 Speaker 3: Bank of America and the CFO is saying about them. 85 00:04:12,520 --> 00:04:16,800 Speaker 3: Expect zero losses from the how to maturity securities. I 86 00:04:16,839 --> 00:04:19,360 Speaker 3: think we all understand that what gets them out of 87 00:04:19,400 --> 00:04:22,240 Speaker 3: the penalty box regarding this story, because that stuff has 88 00:04:22,279 --> 00:04:24,600 Speaker 3: been bullied by this story. 89 00:04:25,080 --> 00:04:28,160 Speaker 2: All yeah, yeah, because they're big numbers and that it's legitimate. 90 00:04:28,240 --> 00:04:30,520 Speaker 2: Some banks had to mark the market, and we know 91 00:04:30,560 --> 00:04:33,560 Speaker 2: what happened back back in April. Look, these things will 92 00:04:33,680 --> 00:04:36,640 Speaker 2: mature and they'll they'll be at a zero loss at 93 00:04:36,640 --> 00:04:39,479 Speaker 2: that point in time. But it's so big and it's 94 00:04:39,480 --> 00:04:42,119 Speaker 2: so pervasive. I don't know how you can hide behind 95 00:04:42,120 --> 00:04:42,640 Speaker 2: that anymore. 96 00:04:42,800 --> 00:04:45,760 Speaker 1: To your brilliant question, John, I'm sorry, you're one hundred 97 00:04:45,800 --> 00:04:49,039 Speaker 1: percent correct. The idea of how the maturity is bs 98 00:04:49,040 --> 00:04:52,679 Speaker 1: in any textbook. You go to Lehigh University a million 99 00:04:52,760 --> 00:04:56,280 Speaker 1: years ago and young doll was going, that's bologne. Let's 100 00:04:56,279 --> 00:04:58,320 Speaker 1: talk real blog here. I want to talk about your 101 00:04:58,360 --> 00:05:01,760 Speaker 1: CPA background in the fans warton degree you've got, which 102 00:05:01,800 --> 00:05:06,000 Speaker 1: is about accounting, accounting, accounting. The absolute shock of the 103 00:05:06,040 --> 00:05:10,560 Speaker 1: Gloom Crew has been margin resiliency. That's an IMF term. 104 00:05:10,720 --> 00:05:14,840 Speaker 1: Everybody's resilient. I was resilient over my Moroccan coffee. Are 105 00:05:14,880 --> 00:05:16,840 Speaker 1: we resilient right now in our margins? 106 00:05:16,920 --> 00:05:17,640 Speaker 2: I don't think so. 107 00:05:17,920 --> 00:05:19,280 Speaker 1: You're going to see margins giveaway. 108 00:05:19,520 --> 00:05:22,440 Speaker 2: I think margins will come under some pressure. We're early 109 00:05:22,520 --> 00:05:25,200 Speaker 2: in the reporting season and they've held up reasonably well. 110 00:05:25,200 --> 00:05:28,360 Speaker 2: But I don't see how companies can continue with these 111 00:05:28,360 --> 00:05:31,200 Speaker 2: big price increases to match their cost increase. Look at 112 00:05:31,240 --> 00:05:33,040 Speaker 2: the labor wage gains. 113 00:05:33,160 --> 00:05:35,200 Speaker 1: Okay, so are you in cash? I mean this is 114 00:05:35,240 --> 00:05:37,560 Speaker 1: the negative. This is the gloomy doll we're seeing this. 115 00:05:37,600 --> 00:05:42,080 Speaker 2: So we have more defensive securities. I want securities stocks 116 00:05:42,480 --> 00:05:47,640 Speaker 2: that have high earnings predictability, high earnings persistence, good cash flow, 117 00:05:47,720 --> 00:05:52,080 Speaker 2: and reasonable valuations, and that means you're away from the 118 00:05:52,120 --> 00:05:53,360 Speaker 2: economy to some degree. 119 00:05:53,440 --> 00:05:56,200 Speaker 1: That's Apple, Microsoft, and Manchester. 120 00:05:55,920 --> 00:06:00,880 Speaker 2: United Those it fit the bill. 121 00:06:02,200 --> 00:06:02,599 Speaker 1: Definitely. 122 00:06:02,600 --> 00:06:06,400 Speaker 2: I double up on Manchester. The HMOs fit the bill. 123 00:06:06,680 --> 00:06:10,880 Speaker 2: Some software companies fit that bill. It's what are the 124 00:06:10,960 --> 00:06:14,840 Speaker 2: companies that you're pretty sure six months from now will 125 00:06:14,880 --> 00:06:17,840 Speaker 2: deliver the earnings that are expected. I think a lot 126 00:06:17,839 --> 00:06:21,360 Speaker 2: of companies will miss on earnings as the economy slows, 127 00:06:21,520 --> 00:06:23,799 Speaker 2: whether we get a recession or not. That's escaped almost 128 00:06:23,800 --> 00:06:26,680 Speaker 2: everybody's vocabulary. I don't think it's out out of the 129 00:06:26,720 --> 00:06:27,640 Speaker 2: picture for next year. 130 00:06:27,720 --> 00:06:31,719 Speaker 1: Walmart present p E almost a thirty multiple. I don't 131 00:06:31,760 --> 00:06:32,080 Speaker 1: get it. 132 00:06:32,560 --> 00:06:34,320 Speaker 3: How many times this year have we heard about a 133 00:06:34,320 --> 00:06:38,160 Speaker 3: weekly consumer all times? We said on this program the economist, 134 00:06:38,200 --> 00:06:41,279 Speaker 3: the crime recession, do you see it actually materialize in 135 00:06:41,320 --> 00:06:43,320 Speaker 3: this quarter? What are the sources of demand that's hound 136 00:06:43,360 --> 00:06:46,520 Speaker 3: at this economy, but you can identify that are fading currently. 137 00:06:46,920 --> 00:06:49,520 Speaker 2: So the amount of cash on the balance sheets, the 138 00:06:49,560 --> 00:06:52,120 Speaker 2: excess cash from the pandemic that has definitely come down. 139 00:06:52,200 --> 00:06:54,960 Speaker 2: We can debate whether it's almost over still half a 140 00:06:54,960 --> 00:06:57,240 Speaker 2: trillion or whatever, but it's not three and a half 141 00:06:57,279 --> 00:07:02,240 Speaker 2: trillion where it was two. Starting to see a fewer 142 00:07:02,279 --> 00:07:06,800 Speaker 2: people work multiple jobs, and that's often a lead indicator 143 00:07:06,880 --> 00:07:10,800 Speaker 2: into the job market. It's not a long list. At 144 00:07:10,840 --> 00:07:14,120 Speaker 2: this point. You have to look at the lead indicators 145 00:07:14,640 --> 00:07:17,920 Speaker 2: for the employment cycle, and they are getting to the 146 00:07:17,960 --> 00:07:20,920 Speaker 2: point now where eighteen twenty four months after the Fed 147 00:07:20,960 --> 00:07:24,640 Speaker 2: starts raising rates, after the yield curve begins to invert. 148 00:07:24,480 --> 00:07:26,120 Speaker 5: We just we just have no patience. 149 00:07:26,520 --> 00:07:27,360 Speaker 1: Somebody went back. 150 00:07:27,240 --> 00:07:30,200 Speaker 2: And looked at these periods in the past between Fed 151 00:07:30,280 --> 00:07:33,320 Speaker 2: raising rates, yield curve inverting, and the start of recession. 152 00:07:33,520 --> 00:07:36,640 Speaker 2: The dialogue is always out of recession, it's never coming, 153 00:07:36,920 --> 00:07:38,640 Speaker 2: and then all of a sudden, there it is. 154 00:07:39,080 --> 00:07:42,760 Speaker 3: Jobless claims coincidental indicator saying it's not here. 155 00:07:42,600 --> 00:07:42,920 Speaker 5: Isn't it? 156 00:07:42,960 --> 00:07:44,559 Speaker 2: No, it's not here yet that's correct. 157 00:07:44,720 --> 00:07:46,800 Speaker 5: Still in and around tondray Kine. 158 00:07:50,560 --> 00:07:54,400 Speaker 1: Grig Dako joins us NOW chief economist E Y as 159 00:07:54,440 --> 00:07:58,600 Speaker 1: he considers this across all the advantages of the EY system. 160 00:07:58,840 --> 00:08:01,840 Speaker 1: The market was were you yes? 161 00:08:01,960 --> 00:08:04,440 Speaker 6: I think the surprise was both in terms of the 162 00:08:04,480 --> 00:08:06,760 Speaker 6: strength of the data in September, but also, as you 163 00:08:06,800 --> 00:08:09,400 Speaker 6: mentioned the upward revision for the month of August, we 164 00:08:09,520 --> 00:08:12,720 Speaker 6: are seeing that consumers spent more than we initially thought 165 00:08:12,760 --> 00:08:15,080 Speaker 6: over the course of the summer. The key question is 166 00:08:15,120 --> 00:08:18,880 Speaker 6: twofold One, do we see that momentum persist into the 167 00:08:18,920 --> 00:08:20,920 Speaker 6: fourth quarter or do we see a little bit of 168 00:08:20,920 --> 00:08:23,040 Speaker 6: a pullback after the strong summer? 169 00:08:23,360 --> 00:08:23,520 Speaker 1: Two? 170 00:08:24,000 --> 00:08:27,080 Speaker 6: Is it inflationary growth? To your question about whether the 171 00:08:27,080 --> 00:08:29,880 Speaker 6: Fed will have to go further in terms of raising rates, 172 00:08:30,240 --> 00:08:33,479 Speaker 6: so far we haven't seen the type of inflationary dynamics 173 00:08:33,760 --> 00:08:36,560 Speaker 6: that would be aligned with this strong growth. I think 174 00:08:36,600 --> 00:08:39,000 Speaker 6: that would allow the Fed to not necessarily have to 175 00:08:39,040 --> 00:08:39,640 Speaker 6: tighten further. 176 00:08:39,760 --> 00:08:43,800 Speaker 1: Are we in the thrall still of pandemic uncertainty? Do 177 00:08:43,880 --> 00:08:46,480 Speaker 1: you have a belief to Q four? Can you model 178 00:08:46,520 --> 00:08:50,319 Speaker 1: out Q one Q two of twenty twenty four, or 179 00:08:50,320 --> 00:08:52,320 Speaker 1: are you just making it up because this is a 180 00:08:52,440 --> 00:08:55,400 Speaker 1: regional macroeconomics. 181 00:08:54,800 --> 00:08:57,280 Speaker 6: Well, I think it's very difficult, certainly to forecast in 182 00:08:57,320 --> 00:08:59,440 Speaker 6: the current environment. We have a set of unique features 183 00:08:59,440 --> 00:09:01,280 Speaker 6: when it comes to the state of the labor market, 184 00:09:01,320 --> 00:09:03,280 Speaker 6: we have a set of unique features when it comes 185 00:09:03,320 --> 00:09:05,200 Speaker 6: to the state of the housing market. When it comes 186 00:09:05,280 --> 00:09:08,640 Speaker 6: to the resilience of consumers, even we've been surprised as 187 00:09:08,640 --> 00:09:11,360 Speaker 6: to how resilient consumers are. But I would note a 188 00:09:11,360 --> 00:09:11,920 Speaker 6: few things. 189 00:09:12,200 --> 00:09:13,400 Speaker 5: First, we are. 190 00:09:13,320 --> 00:09:17,520 Speaker 6: Seeing the drag from higher prices weighing on consumers' ability 191 00:09:17,600 --> 00:09:21,320 Speaker 6: to spend as we move forward, especially for lower income families. 192 00:09:21,559 --> 00:09:24,440 Speaker 6: We're seeing the weight of higher interest rates weighing on 193 00:09:24,480 --> 00:09:27,960 Speaker 6: people's ability and desire to spend on credit. We're seeing 194 00:09:28,000 --> 00:09:30,960 Speaker 6: tightening credit conditions, and we are seeing the effect of 195 00:09:31,000 --> 00:09:33,200 Speaker 6: tighter financial conditions even today. 196 00:09:33,320 --> 00:09:34,120 Speaker 5: Okay, this is what. 197 00:09:34,120 --> 00:09:37,480 Speaker 4: People have been saying. FED officials included in anecdotal conversations 198 00:09:37,480 --> 00:09:40,199 Speaker 4: that they've been having with their constituents. They're hearing about this. 199 00:09:40,600 --> 00:09:42,880 Speaker 4: So then why does the data keep coming in strong 200 00:09:42,840 --> 00:09:44,680 Speaker 4: because an expected read after read. 201 00:09:44,840 --> 00:09:47,439 Speaker 6: Well, again, this is still the third quarter, right, we 202 00:09:47,559 --> 00:09:50,280 Speaker 6: had a strong third quarter. We know the spending in 203 00:09:50,360 --> 00:09:53,160 Speaker 6: terms of consumer activity was very strong in the third quarter. 204 00:09:53,440 --> 00:09:56,920 Speaker 6: We also know we're not seeing a retrenchment that is 205 00:09:56,960 --> 00:09:59,480 Speaker 6: one of the key elements of this economy. We're not 206 00:09:59,520 --> 00:10:02,520 Speaker 6: seeing the business sector retrench, whether it's in terms of 207 00:10:02,520 --> 00:10:05,960 Speaker 6: investment or hiring, that it's still supportive of income and 208 00:10:06,040 --> 00:10:08,920 Speaker 6: in turn that has allowed consumer to spend. The key 209 00:10:08,960 --> 00:10:11,880 Speaker 6: question is whether this type of momentum, very strong momentum 210 00:10:11,920 --> 00:10:14,959 Speaker 6: in the third quarter, can really persist into the fourth 211 00:10:15,000 --> 00:10:16,400 Speaker 6: and into the first of next year. 212 00:10:16,480 --> 00:10:19,040 Speaker 4: You said something that was really important that it's unclear 213 00:10:19,080 --> 00:10:22,280 Speaker 4: whether this type of spending is inflationary. What is going 214 00:10:22,360 --> 00:10:25,200 Speaker 4: to be the tell on that, Because it seems like 215 00:10:25,320 --> 00:10:28,160 Speaker 4: if people are willing to pay higher prices and companies 216 00:10:28,160 --> 00:10:30,600 Speaker 4: are passing them along again to PEPSI or co cod, 217 00:10:30,720 --> 00:10:33,560 Speaker 4: you've got sh inflation and all that. Well, why wouldn't 218 00:10:33,600 --> 00:10:36,679 Speaker 4: this be inflationary? Why would inflation keep dropping? 219 00:10:37,120 --> 00:10:40,000 Speaker 6: Well, we've continued to see slower momentum when it comes 220 00:10:40,000 --> 00:10:43,040 Speaker 6: to CPI prices, when it comes to PPI prices, even 221 00:10:43,080 --> 00:10:46,080 Speaker 6: the margins on the PPI front are pointing to less 222 00:10:46,120 --> 00:10:49,840 Speaker 6: inflation on a sequential momentum basis. Even the jobs report 223 00:10:49,960 --> 00:10:52,640 Speaker 6: last Friday that was very strong, it was non inflationary. 224 00:10:52,880 --> 00:10:55,600 Speaker 6: We were seeing the help from the supply side help 225 00:10:55,640 --> 00:10:58,720 Speaker 6: alleviate some of the wage pressures and bring down wage growth. 226 00:10:58,840 --> 00:11:02,439 Speaker 6: So that's less inflationary then would be concerning for the FED. 227 00:11:02,720 --> 00:11:06,080 Speaker 6: And we've seen actually inflation run ahead of the Fed's expectations. 228 00:11:06,120 --> 00:11:08,760 Speaker 6: I wouldn't be surprised that we end up below the 229 00:11:08,800 --> 00:11:11,880 Speaker 6: Fed's SEP projections in terms of inflation by year end. 230 00:11:11,960 --> 00:11:14,800 Speaker 1: Greg daco E y with us will continue here a 231 00:11:14,880 --> 00:11:16,839 Speaker 1: five point one five percent in the two years. The 232 00:11:16,880 --> 00:11:19,400 Speaker 1: ten year yield really buttressed out right to recent highs 233 00:11:19,440 --> 00:11:22,480 Speaker 1: four point eight zero percent. Thirty year bond a dash 234 00:11:22,559 --> 00:11:25,640 Speaker 1: to five percent four point ninety four percent. Michael McKee 235 00:11:25,760 --> 00:11:27,079 Speaker 1: further observation. 236 00:11:27,080 --> 00:11:30,559 Speaker 7: Well, I think the auto sales is an interesting situation, 237 00:11:30,679 --> 00:11:32,560 Speaker 7: and we don't know how much of that is parts 238 00:11:32,600 --> 00:11:35,440 Speaker 7: and repairs. But given the fact that we had a 239 00:11:35,520 --> 00:11:39,280 Speaker 7: strike and maybe that's got people to go buy cars 240 00:11:39,320 --> 00:11:42,240 Speaker 7: while they thought they could. But at nine fifteen this 241 00:11:42,320 --> 00:11:46,000 Speaker 7: morning Eastern, we get the industrial production numbers and we'll 242 00:11:46,040 --> 00:11:49,360 Speaker 7: see about auto manufacturing, see if that is a sort 243 00:11:49,360 --> 00:11:51,800 Speaker 7: of counterweight to the auto sales. If we're just selling 244 00:11:51,800 --> 00:11:53,560 Speaker 7: what's on the lot and you're not going to have 245 00:11:53,600 --> 00:11:56,120 Speaker 7: any more, then that is less of a problem for 246 00:11:56,160 --> 00:11:58,120 Speaker 7: the FED. But it's an interesting dynamic. 247 00:11:58,200 --> 00:12:03,040 Speaker 1: But for four years we've missed, simply missed guests, the 248 00:12:03,160 --> 00:12:07,480 Speaker 1: resiliency of the consumer. What are the economists doing wrong? 249 00:12:09,800 --> 00:12:11,760 Speaker 7: It's an interesting question because we always used to say 250 00:12:11,800 --> 00:12:14,200 Speaker 7: before the pandemic, never stand between an American and a 251 00:12:14,240 --> 00:12:18,000 Speaker 7: cash register, and that seems to be back in force. 252 00:12:18,960 --> 00:12:21,520 Speaker 7: There was a shift in spending. Everybody went to goods 253 00:12:21,600 --> 00:12:24,320 Speaker 7: during the pandemic, and then everybody did revenge travel and 254 00:12:24,360 --> 00:12:27,120 Speaker 7: went to services. And now it seems to be broadening 255 00:12:27,120 --> 00:12:29,720 Speaker 7: out so that people are just continuing to spend. But 256 00:12:29,800 --> 00:12:33,400 Speaker 7: we thought that their money would run out and it hasn't. 257 00:12:33,920 --> 00:12:38,079 Speaker 7: It may be the additional wage gains that people have gotten, 258 00:12:38,120 --> 00:12:42,000 Speaker 7: because people tend to spend what they make, and now 259 00:12:42,040 --> 00:12:45,160 Speaker 7: if we've spent down the pandemic bonuses, it may be 260 00:12:45,240 --> 00:12:47,200 Speaker 7: that people got raises and they feel like they can 261 00:12:47,240 --> 00:12:47,840 Speaker 7: spend more. 262 00:12:47,760 --> 00:12:50,199 Speaker 4: Greg just final word here, does that mean that this 263 00:12:50,240 --> 00:12:52,880 Speaker 4: world can live with five percent patchmark rates? And that 264 00:12:52,920 --> 00:12:55,679 Speaker 4: we're looking at a new term structure that looks very 265 00:12:55,679 --> 00:12:57,240 Speaker 4: different to what he did it three years ago. 266 00:12:57,400 --> 00:12:59,360 Speaker 6: Well, we certainly have to adapt to a higher cost 267 00:12:59,360 --> 00:13:01,920 Speaker 6: of capital. Think there's no doubt that we have to 268 00:13:02,280 --> 00:13:05,600 Speaker 6: have both the business sector and the consumer sector adapt 269 00:13:05,600 --> 00:13:07,680 Speaker 6: to this higher cost of capital. I would point to 270 00:13:07,760 --> 00:13:09,920 Speaker 6: one thing that is very important in this higher cost 271 00:13:09,960 --> 00:13:13,120 Speaker 6: of capital environment, how strong income is. If we start 272 00:13:13,120 --> 00:13:16,040 Speaker 6: to see softening in income, which we have seen, that 273 00:13:16,120 --> 00:13:18,760 Speaker 6: will weigh on people's ability to spend. But there's no 274 00:13:18,880 --> 00:13:21,240 Speaker 6: doubt that we're not going back to the free money era. 275 00:13:21,679 --> 00:13:24,160 Speaker 6: People still want to invest in this environment, but there's 276 00:13:24,200 --> 00:13:26,319 Speaker 6: going to be more scrutiny as to how much investment 277 00:13:26,360 --> 00:13:28,440 Speaker 6: goes into the economy and how much hiring goes in 278 00:13:28,640 --> 00:13:28,880 Speaker 6: road To. 279 00:13:28,880 --> 00:13:32,120 Speaker 1: Find a quick question which matters most the November meeting 280 00:13:32,200 --> 00:13:35,079 Speaker 1: November one or do we dash to December? Which meeting 281 00:13:35,120 --> 00:13:36,720 Speaker 1: is of greater value to Greg Bako. 282 00:13:37,120 --> 00:13:38,960 Speaker 6: I think both meetings are going to be quite interesting 283 00:13:39,000 --> 00:13:41,080 Speaker 6: because even if we don't get a rate hike at 284 00:13:41,080 --> 00:13:44,680 Speaker 6: the upcoming November meeting, we'll get a discussion and more 285 00:13:44,720 --> 00:13:47,880 Speaker 6: information coming out of Fetcher Powell as to the intentions 286 00:13:47,920 --> 00:13:50,400 Speaker 6: of the FED going into the last meeting of the year. 287 00:13:50,559 --> 00:13:53,680 Speaker 6: They will want to maintain that optionality of one more meeting, 288 00:13:53,840 --> 00:13:56,440 Speaker 6: but I think they're increasingly taking comfort in the fact 289 00:13:56,480 --> 00:13:58,880 Speaker 6: that the July rate hike may have been this last 290 00:13:59,000 --> 00:14:01,000 Speaker 6: rate hike in the system tightening cycle. 291 00:14:01,440 --> 00:14:05,680 Speaker 7: Interesting time we see this. The November meeting hasn't changed 292 00:14:05,679 --> 00:14:09,000 Speaker 7: in terms of futures pricing nine point eight percent, but 293 00:14:09,040 --> 00:14:11,880 Speaker 7: now we're up to thirty one percent for December exactly. 294 00:14:11,920 --> 00:14:13,760 Speaker 1: I think maybe this is the moment where we launch 295 00:14:13,800 --> 00:14:16,280 Speaker 1: out to I believe it's December thirteenth. Greg Daco, thank 296 00:14:16,280 --> 00:14:29,280 Speaker 1: you so much. With e y Ernst and young true 297 00:14:29,320 --> 00:14:32,120 Speaker 1: Ntta Rogen joins us owns the high ground on the 298 00:14:32,200 --> 00:14:36,040 Speaker 1: major banks and particularly Fortress Solomon, or at least Igloo 299 00:14:36,040 --> 00:14:38,520 Speaker 1: Solomon as it is. Let me just go to a 300 00:14:38,600 --> 00:14:41,200 Speaker 1: general and open question right now, your thoughts. I'm looking 301 00:14:41,240 --> 00:14:43,560 Speaker 1: at different stories here saying it was a Moldi quarter 302 00:14:43,640 --> 00:14:45,920 Speaker 1: because of the right downs, but your thoughts. 303 00:14:45,600 --> 00:14:49,880 Speaker 8: Free not necessarily because of the they're pulled back from 304 00:14:49,920 --> 00:14:53,280 Speaker 8: consumer lending. It was a Mouldi quarter. This is again 305 00:14:53,320 --> 00:14:55,680 Speaker 8: a transition quarter. We talked about the second quarter for 306 00:14:55,720 --> 00:14:58,640 Speaker 8: Goldman Sachs being a kitchen sing quarter. They are doing 307 00:14:58,640 --> 00:15:01,440 Speaker 8: this strategy pivot owned up to their mistake with the 308 00:15:01,440 --> 00:15:04,280 Speaker 8: consumer banking foray and locked in a lot of the 309 00:15:04,320 --> 00:15:06,880 Speaker 8: losses and the hits from backing out of that in 310 00:15:06,920 --> 00:15:09,440 Speaker 8: the second quarter. Some of it is reflected in the 311 00:15:09,440 --> 00:15:11,520 Speaker 8: third quarter as well, but the lot of the losses 312 00:15:11,560 --> 00:15:14,080 Speaker 8: are also just straight tied up to the real estate 313 00:15:14,160 --> 00:15:17,280 Speaker 8: market and also the fact that the investment banking market 314 00:15:17,400 --> 00:15:20,800 Speaker 8: remains sluggish. That's what's driving profits down thirty three percent. 315 00:15:21,040 --> 00:15:23,680 Speaker 8: Not necessarily some of the changes you're seeing there, they're 316 00:15:23,720 --> 00:15:27,240 Speaker 8: significant from a strategy perspective, not necessarily a third quarter 317 00:15:27,280 --> 00:15:28,080 Speaker 8: earnings perspective. 318 00:15:28,080 --> 00:15:28,760 Speaker 9: For Goldman Sax. 319 00:15:28,840 --> 00:15:30,040 Speaker 5: What is Agloo Solomon? 320 00:15:30,240 --> 00:15:36,120 Speaker 3: It's a smaller okay, smaller icy Fortress asked the question. 321 00:15:37,640 --> 00:15:39,200 Speaker 4: For that, It was melting. 322 00:15:39,040 --> 00:15:41,920 Speaker 1: Forts is like big and we're doing this, and we're 323 00:15:41,960 --> 00:15:44,120 Speaker 1: doing this is what Jane Fraser wants to do. These 324 00:15:44,160 --> 00:15:47,000 Speaker 1: guys want to Can we just get back to what 325 00:15:47,160 --> 00:15:49,040 Speaker 1: we used to do in a smaller format? 326 00:15:49,120 --> 00:15:51,560 Speaker 5: Okay, just want to do it. That was wonderful. 327 00:15:53,800 --> 00:15:56,320 Speaker 9: Fortress is also a lot more sturdy than an Igloo. 328 00:15:57,280 --> 00:16:00,880 Speaker 3: Okay, Okay, you're both taking aren't you. Are you saying 329 00:16:00,920 --> 00:16:02,840 Speaker 3: that things are sturdier at JP Morgan Right now, the 330 00:16:02,920 --> 00:16:07,800 Speaker 3: guy I was just trying to explain, Okay, I'm making 331 00:16:07,840 --> 00:16:11,120 Speaker 3: a career out of that. Okay, of the forces that 332 00:16:11,160 --> 00:16:13,720 Speaker 3: have had this bank back and things getting better or worse. 333 00:16:15,120 --> 00:16:18,360 Speaker 8: It's headed in a new direction, not necessarily better or worse, 334 00:16:18,400 --> 00:16:20,720 Speaker 8: because they will have to execute it is a story 335 00:16:20,800 --> 00:16:21,440 Speaker 8: that they have to tell. 336 00:16:21,760 --> 00:16:23,520 Speaker 9: They have a coherent story to tell. 337 00:16:23,640 --> 00:16:23,760 Speaker 1: Now. 338 00:16:23,920 --> 00:16:26,080 Speaker 8: You could argue that there was some flip flopping over 339 00:16:26,080 --> 00:16:28,360 Speaker 8: the last couple of years, but at least now it's clear. 340 00:16:28,600 --> 00:16:30,880 Speaker 8: They say they have two important legs to the stool, 341 00:16:31,080 --> 00:16:33,600 Speaker 8: the investment bank and the asset and wealth management unit. 342 00:16:33,880 --> 00:16:36,560 Speaker 8: Now the key is to prove that they can deliver 343 00:16:36,680 --> 00:16:40,240 Speaker 8: on both fronts to the expectations of investors and therefore 344 00:16:40,320 --> 00:16:42,560 Speaker 8: drive the stock higher with higher multiples down the road. 345 00:16:42,640 --> 00:16:44,680 Speaker 4: What can we learn from the fact the Goldman Sachs 346 00:16:44,800 --> 00:16:47,800 Speaker 4: beat on equity trading revenue at a time we saw JP, 347 00:16:47,920 --> 00:16:49,240 Speaker 4: Worman and City Group not. 348 00:16:49,880 --> 00:16:52,720 Speaker 8: It's interesting look over the last few years the crown 349 00:16:52,840 --> 00:16:55,680 Speaker 8: for equity trading champion on Wall Street has been moving 350 00:16:55,720 --> 00:16:58,960 Speaker 8: around with Goldman Sacks, Moment, Stanley, JP Morgan. It was 351 00:16:59,120 --> 00:17:02,800 Speaker 8: pre pandemic least for a few years. Unquestionably Morgan Stanley 352 00:17:03,160 --> 00:17:05,600 Speaker 8: not so much post pandemic. That comes down to some 353 00:17:05,720 --> 00:17:07,840 Speaker 8: credit you have to give to Goldman traders who have 354 00:17:07,960 --> 00:17:11,840 Speaker 8: gained serious market share across equities, and Fick Bank of 355 00:17:11,880 --> 00:17:14,240 Speaker 8: America had a big jump in their equity trading business, 356 00:17:14,480 --> 00:17:17,040 Speaker 8: but that was off a lower base. Goldman's jump from 357 00:17:17,080 --> 00:17:18,960 Speaker 8: two point six billion to two point nine billion a. 358 00:17:19,000 --> 00:17:20,160 Speaker 9: Quarter, it's pretty significant. 359 00:17:20,160 --> 00:17:22,280 Speaker 8: If you can hit three billion a quarter in equities, 360 00:17:22,400 --> 00:17:23,520 Speaker 8: that's a pretty sturdy business. 361 00:17:23,640 --> 00:17:26,240 Speaker 4: What's the difference between market share gains and writing a 362 00:17:26,320 --> 00:17:28,639 Speaker 4: good market right A lot of people have raised questions 363 00:17:28,680 --> 00:17:31,040 Speaker 4: about how robust capital markets are right now, given the 364 00:17:31,119 --> 00:17:33,520 Speaker 4: fact that a lot of company are icing a lot 365 00:17:33,560 --> 00:17:36,600 Speaker 4: of their transactions. How much is this just market share 366 00:17:36,680 --> 00:17:39,800 Speaker 4: gain from European banks from smaller banks from each other, 367 00:17:40,119 --> 00:17:42,080 Speaker 4: rather than really reflective of a good environment. 368 00:17:42,359 --> 00:17:44,399 Speaker 8: Writing the gains is the factor of the overall wallet. 369 00:17:44,920 --> 00:17:47,679 Speaker 8: An individual bank does not control that, But what they 370 00:17:47,760 --> 00:17:50,680 Speaker 8: can control is the market share of the wallet that's available. 371 00:17:50,880 --> 00:17:54,000 Speaker 8: And if you are gaining market share there, you're making progress. 372 00:17:54,320 --> 00:17:56,880 Speaker 8: So even if the entire industry moves in a certain trend, 373 00:17:57,119 --> 00:17:59,639 Speaker 8: if you're gaining within that, you will stand out at 374 00:17:59,720 --> 00:18:01,280 Speaker 8: least eyes of investors straight now. 375 00:18:01,320 --> 00:18:03,320 Speaker 3: Everyone's a bank canalyst. So some people listening to this 376 00:18:03,440 --> 00:18:06,080 Speaker 3: and hearing phrases like house maturity, securities and all of 377 00:18:06,119 --> 00:18:08,760 Speaker 3: this stuff regarded Bank for America, the stock's in a 378 00:18:08,800 --> 00:18:11,240 Speaker 3: penalty box. It's down close to twenty percent. Yet today, 379 00:18:11,520 --> 00:18:14,159 Speaker 3: can you explain what is coming on? Those longer de 380 00:18:14,160 --> 00:18:17,040 Speaker 3: ety securities are underwater? We can all get that far. 381 00:18:17,560 --> 00:18:19,520 Speaker 3: What's it stopping this bank from being able to do 382 00:18:19,960 --> 00:18:21,680 Speaker 3: that is punishing this stock so much. 383 00:18:22,040 --> 00:18:24,200 Speaker 8: The punishment in the stock simply goes to the fact 384 00:18:24,240 --> 00:18:26,600 Speaker 8: that because they made that move, because they plowed their 385 00:18:26,640 --> 00:18:29,040 Speaker 8: excess deposits a couple of years ago into some of 386 00:18:29,160 --> 00:18:32,160 Speaker 8: these longer dated securities, that with the moves and interest 387 00:18:32,240 --> 00:18:34,800 Speaker 8: rates that we've seen have been underwater, has meant that 388 00:18:34,920 --> 00:18:37,760 Speaker 8: their securities portfolio is done one hundred and thirty one billion. 389 00:18:38,160 --> 00:18:41,320 Speaker 8: That doesn't affect their earnings, but it does affect their 390 00:18:41,320 --> 00:18:45,000 Speaker 8: earnings potential. Right if they had not had this money 391 00:18:45,080 --> 00:18:47,040 Speaker 8: locked up there because it's all in health for maturity 392 00:18:47,119 --> 00:18:48,840 Speaker 8: right now, if they didn't have that money locked up 393 00:18:48,880 --> 00:18:51,280 Speaker 8: there and earning two point five percent, it could well 394 00:18:51,320 --> 00:18:53,520 Speaker 8: have been earning four point five percent and five percent 395 00:18:53,600 --> 00:18:54,640 Speaker 8: in a five percent world. 396 00:18:55,040 --> 00:18:58,120 Speaker 1: Okay, this is brilliant, and I got like eight questions 397 00:18:58,160 --> 00:19:00,959 Speaker 1: and we don't have time. What is the maturity right now? 398 00:19:01,080 --> 00:19:04,560 Speaker 1: What is the average maturity of They're under a tenth 399 00:19:04,600 --> 00:19:05,719 Speaker 1: of a trillion dollars? 400 00:19:05,880 --> 00:19:08,320 Speaker 8: See, this is what I said about trying to deciber Tomkin. 401 00:19:08,440 --> 00:19:12,200 Speaker 8: It can be very tricky and sometimes you just you 402 00:19:12,320 --> 00:19:14,000 Speaker 8: got me there, Tom, I don't we don't know. 403 00:19:14,119 --> 00:19:15,560 Speaker 1: Does Michael Barnow at the FED? 404 00:19:16,040 --> 00:19:16,720 Speaker 9: I'm sure he does. 405 00:19:17,320 --> 00:19:20,439 Speaker 1: Why don't we know? I don't understand why shareholders don't 406 00:19:20,560 --> 00:19:24,080 Speaker 1: know the average maturity of any given banks held a 407 00:19:24,160 --> 00:19:25,200 Speaker 1: maturity portfolio. 408 00:19:25,760 --> 00:19:28,040 Speaker 9: They do break it down. If I pull up the results, 409 00:19:28,080 --> 00:19:29,560 Speaker 9: I can probably figure out that number for you. 410 00:19:29,720 --> 00:19:32,840 Speaker 3: The distinction industry is making, Tom is really important. This 411 00:19:33,000 --> 00:19:35,680 Speaker 3: isn't about selling those securities at are lost. It's about 412 00:19:35,720 --> 00:19:38,000 Speaker 3: earning potential, which is what I really wanted to break 413 00:19:38,040 --> 00:19:39,680 Speaker 3: this down. So when they come out and they say 414 00:19:39,760 --> 00:19:44,159 Speaker 3: things like we will have no losses realized on these securities, 415 00:19:44,440 --> 00:19:46,800 Speaker 3: that's kind of meaningless, isn't it. Isn't it just that 416 00:19:47,119 --> 00:19:50,720 Speaker 3: your earnings potential relative to say JP Morgan, is that 417 00:19:50,880 --> 00:19:52,439 Speaker 3: much lower if you have a four. 418 00:19:52,359 --> 00:19:54,640 Speaker 8: Hundred billion dollar securities portfolio. Let's make up a number, 419 00:19:54,640 --> 00:19:57,399 Speaker 8: your five hundred billion dollar securities portfolio, and you're earning 420 00:19:57,400 --> 00:19:59,520 Speaker 8: two point five percent instead of an average of four 421 00:19:59,520 --> 00:20:01,640 Speaker 8: point five percent on that that's a two percent diage 422 00:20:01,640 --> 00:20:04,520 Speaker 8: point difference, and that's a ten billion dollar earnings difference. 423 00:20:04,760 --> 00:20:06,320 Speaker 9: That adds up, and that matters. 424 00:20:06,440 --> 00:20:08,760 Speaker 8: That's the reason the stocks down twenty percent this year, 425 00:20:09,119 --> 00:20:11,159 Speaker 8: was down even more last year, and that's not a 426 00:20:11,200 --> 00:20:13,600 Speaker 8: good look over a near two year period. 427 00:20:13,440 --> 00:20:15,359 Speaker 4: When it comes to earnings potential. Though we're not talking 428 00:20:15,400 --> 00:20:19,359 Speaker 4: about extending loans for mortgages. Tama show of KBW on 429 00:20:19,520 --> 00:20:21,720 Speaker 4: earlier saying that they've gotten out of the game pretty much. 430 00:20:22,240 --> 00:20:25,159 Speaker 4: How much is this just simply being able to capture 431 00:20:25,200 --> 00:20:28,600 Speaker 4: the differential to current market yields on safe loans to 432 00:20:28,720 --> 00:20:31,359 Speaker 4: high income people versus the beta of what you got 433 00:20:31,400 --> 00:20:33,200 Speaker 4: a pit the depositors, which is basically nothing. 434 00:20:33,960 --> 00:20:35,720 Speaker 8: If they were down five percent, if they were down 435 00:20:35,800 --> 00:20:37,800 Speaker 8: eight percent, and we're talking about how do they get 436 00:20:37,840 --> 00:20:40,560 Speaker 8: to being down four percent or being flat for the year. 437 00:20:40,840 --> 00:20:42,960 Speaker 8: That's the latter is what we're talking about. The reason 438 00:20:43,040 --> 00:20:46,080 Speaker 8: they're down twenty percent, way worse than every other big 439 00:20:46,280 --> 00:20:48,960 Speaker 8: US bank out there is largely down to this earnings 440 00:20:49,040 --> 00:20:51,320 Speaker 8: potential because they are missing out, plain and simple. 441 00:20:52,080 --> 00:20:55,080 Speaker 1: One final question, does David Solomon have a support of 442 00:20:55,160 --> 00:20:58,440 Speaker 1: the board within your reporting? I give him very high 443 00:20:58,520 --> 00:21:02,439 Speaker 1: marks for managing this, as you say, kitchen syk over 444 00:21:02,520 --> 00:21:04,800 Speaker 1: to another quarter, but does he have the support of 445 00:21:04,840 --> 00:21:06,240 Speaker 1: the board in this process. 446 00:21:06,440 --> 00:21:08,320 Speaker 8: We don't have to guess on that front because last 447 00:21:08,440 --> 00:21:11,360 Speaker 8: month Mike Mayer was able to extract a public nod 448 00:21:11,440 --> 00:21:15,440 Speaker 8: of support from the Goldman Saxe board lead directors saying He's. 449 00:21:15,359 --> 00:21:16,400 Speaker 9: Not going anywhere. 450 00:21:16,520 --> 00:21:17,480 Speaker 1: What's Montag doing. 451 00:21:17,680 --> 00:21:21,120 Speaker 8: Montag's there digging into numbers and clearly backing David Solomon. 452 00:21:21,840 --> 00:21:25,720 Speaker 3: This is found personal for I would say the whole yes, 453 00:21:25,840 --> 00:21:28,120 Speaker 3: so far, hasn't it? It's faun personal within the bank. 454 00:21:28,760 --> 00:21:31,320 Speaker 3: I don't hear complaints from investors like we've heard complaints 455 00:21:31,359 --> 00:21:33,400 Speaker 3: from sources within the institution. 456 00:21:34,320 --> 00:21:37,080 Speaker 8: Undoubtedly there was dissatisfaction in the ranks. You can't get 457 00:21:37,080 --> 00:21:39,560 Speaker 8: away from that. Part of it is Goldman screwed up 458 00:21:39,720 --> 00:21:43,359 Speaker 8: on one front. Goldman Sax prides itself on excellence and 459 00:21:43,480 --> 00:21:46,480 Speaker 8: in fact risk taking, and they have very little tolerance 460 00:21:46,560 --> 00:21:48,880 Speaker 8: for it. But now that you're through the other side, 461 00:21:48,920 --> 00:21:51,040 Speaker 8: now that you've copped up to your mistake. Now the 462 00:21:51,119 --> 00:21:54,200 Speaker 8: story is do you then move on or does the 463 00:21:54,359 --> 00:21:56,439 Speaker 8: rank and file still demand consequence? 464 00:21:56,600 --> 00:21:57,800 Speaker 5: They're trying to move on straight. 465 00:21:57,840 --> 00:22:01,399 Speaker 3: Thank you, sir Snadarajin there, I've blown Banks America and 466 00:22:01,480 --> 00:22:02,920 Speaker 3: on Kelmut Saxony. 467 00:22:06,359 --> 00:22:09,120 Speaker 1: Began. Graper joins us Don Global, co Head of Debt 468 00:22:09,200 --> 00:22:12,800 Speaker 1: Capital Markets at Barclays. Megan, you note the disinversion out there, 469 00:22:13,240 --> 00:22:15,800 Speaker 1: the yield curves doing what a yield curve should do. 470 00:22:16,560 --> 00:22:21,680 Speaker 1: You suggest that extends the timeline for the Fed? How 471 00:22:21,760 --> 00:22:26,960 Speaker 1: does disinversion change the Fed's timeline into two thousand and 472 00:22:27,400 --> 00:22:27,960 Speaker 1: twenty four? 473 00:22:29,400 --> 00:22:31,160 Speaker 10: Yeah, I mean, I think it's fair to say we've 474 00:22:31,280 --> 00:22:35,119 Speaker 10: entered a far more complicated phase of this cycle. The 475 00:22:35,240 --> 00:22:37,800 Speaker 10: market's really now in a daily tug of war with 476 00:22:38,320 --> 00:22:40,800 Speaker 10: policymakers around the path of rates, and I think there's 477 00:22:40,840 --> 00:22:45,240 Speaker 10: been a lot of misinterpreted signals this month. I think 478 00:22:45,240 --> 00:22:47,240 Speaker 10: the real question in my mind is what Powell and 479 00:22:47,600 --> 00:22:50,160 Speaker 10: other members of the FED opt to message this week 480 00:22:50,240 --> 00:22:53,760 Speaker 10: ahead of blackouts in the context of what continues to 481 00:22:53,800 --> 00:22:57,320 Speaker 10: be a rapidly evolving backdrop. But you've got, you know, 482 00:22:57,400 --> 00:23:00,760 Speaker 10: a strong jose of reality for the market. Between employment 483 00:23:00,840 --> 00:23:04,480 Speaker 10: data CPI PPI A you mish. I mean all of 484 00:23:04,520 --> 00:23:08,119 Speaker 10: that combined, I think you know, plays into how markets 485 00:23:08,119 --> 00:23:10,720 Speaker 10: are responding, particularly on the rate side. But I think 486 00:23:10,760 --> 00:23:14,600 Speaker 10: we've read far too much into recent FED speak that 487 00:23:14,720 --> 00:23:17,320 Speaker 10: implied that these higher rates might have actually done some 488 00:23:17,440 --> 00:23:19,960 Speaker 10: of the heavy lifting. And what I think the market 489 00:23:20,000 --> 00:23:23,040 Speaker 10: has failed to take into account is the nuance behind 490 00:23:23,080 --> 00:23:26,280 Speaker 10: the why. I mean, why are financial conditions tighter? If 491 00:23:26,280 --> 00:23:29,000 Speaker 10: it's the strength of the economy which is fueling these 492 00:23:29,080 --> 00:23:32,160 Speaker 10: longer term interest rates, they may actually need to do more. 493 00:23:32,240 --> 00:23:35,119 Speaker 10: And I think if you dug into Logan's commentary, he 494 00:23:35,200 --> 00:23:35,840 Speaker 10: suggested as. 495 00:23:35,840 --> 00:23:37,840 Speaker 1: Much in your head, what is the level of the 496 00:23:37,920 --> 00:23:42,120 Speaker 1: ten year yield where Powell and company are overcome by events? 497 00:23:42,280 --> 00:23:44,640 Speaker 1: Is it a five handle or is it something more 498 00:23:44,720 --> 00:23:45,320 Speaker 1: subtle than that. 499 00:23:46,640 --> 00:23:50,280 Speaker 10: I'm not sure they're really focused on a nominal yield 500 00:23:50,359 --> 00:23:53,080 Speaker 10: as being the determining factor. I think it's more about 501 00:23:53,200 --> 00:23:57,280 Speaker 10: financial conditions, tightening of financial conditions and buying themselves room 502 00:23:57,359 --> 00:23:59,120 Speaker 10: to continue to evaluate the data. 503 00:23:59,359 --> 00:24:02,240 Speaker 4: How much make and do you see a potential risk 504 00:24:02,440 --> 00:24:06,160 Speaker 4: to credit as yields go higher and potentially the Fed 505 00:24:06,240 --> 00:24:08,440 Speaker 4: does more, which, as you think, is your base case? 506 00:24:09,800 --> 00:24:11,880 Speaker 10: Yeah, I mean I don't think we can underestimate how 507 00:24:12,080 --> 00:24:14,960 Speaker 10: hard it is for risk assets to rally meaningfully here 508 00:24:15,080 --> 00:24:18,639 Speaker 10: when treasuries are this volatile. And yet we are, with 509 00:24:18,800 --> 00:24:21,800 Speaker 10: everything going on, seeing a very resilient credit market. I mean, 510 00:24:21,920 --> 00:24:24,920 Speaker 10: three months spreadballs at the lowest level since the start 511 00:24:24,960 --> 00:24:28,119 Speaker 10: of twenty twenty two. Spreads on the corporate indext are 512 00:24:28,119 --> 00:24:30,960 Speaker 10: still hovering near the tights at one twenty four. So 513 00:24:31,280 --> 00:24:34,440 Speaker 10: it's been a strikingly tame backdrop in the face of 514 00:24:34,480 --> 00:24:37,200 Speaker 10: this elevated rate ball and even with some of the 515 00:24:37,280 --> 00:24:40,480 Speaker 10: geopolitical overhang. I think as you talk to investors, what 516 00:24:40,560 --> 00:24:43,159 Speaker 10: we're starting to see is a bit more polarization in 517 00:24:43,280 --> 00:24:46,240 Speaker 10: terms of how accounts are approaching the market. So there's 518 00:24:46,280 --> 00:24:51,680 Speaker 10: definitively more discipline being incorporated into in terms of investment decisions. 519 00:24:52,040 --> 00:24:55,480 Speaker 10: If your total return focused, I think you're waiting for 520 00:24:55,520 --> 00:24:57,040 Speaker 10: the dust to settle a bit on some of this 521 00:24:57,160 --> 00:25:01,160 Speaker 10: intraday volatility. If your yield focused, there's a very attractive 522 00:25:01,280 --> 00:25:03,880 Speaker 10: entry point here that we continue to see for insurance 523 00:25:03,920 --> 00:25:05,200 Speaker 10: and pension money in particular. 524 00:25:05,560 --> 00:25:07,720 Speaker 4: That's from the investor side, Megan. One reason why it's 525 00:25:07,720 --> 00:25:09,520 Speaker 4: wonderful to speak with you is because you also speak 526 00:25:09,520 --> 00:25:12,639 Speaker 4: with the corporate finance officers, and you understand the angst 527 00:25:12,840 --> 00:25:15,040 Speaker 4: of paying more than ten percent yields at least if 528 00:25:15,080 --> 00:25:17,120 Speaker 4: you take a look at some of the market rates 529 00:25:17,160 --> 00:25:19,640 Speaker 4: for about a third of the high yield index. How 530 00:25:19,760 --> 00:25:23,560 Speaker 4: much angs do you feel among corporate executives as they 531 00:25:23,640 --> 00:25:26,560 Speaker 4: look out at their runway and wonder when they're going 532 00:25:26,640 --> 00:25:29,320 Speaker 4: to have to actually face off with these higher interest payments. 533 00:25:30,560 --> 00:25:31,400 Speaker 11: In investment grade. 534 00:25:31,440 --> 00:25:34,640 Speaker 10: There's a decent amount of complacency talking to both treasury 535 00:25:35,359 --> 00:25:38,880 Speaker 10: teams and CFOs as they think about evaluating markets here, 536 00:25:39,200 --> 00:25:43,119 Speaker 10: in part because there's very functional market activity as and 537 00:25:43,160 --> 00:25:45,520 Speaker 10: when they do need to come to market, so there's 538 00:25:45,560 --> 00:25:49,119 Speaker 10: a degree of patients. I think we're seeing we are 539 00:25:49,200 --> 00:25:52,119 Speaker 10: seeing a backlog build for this post earnings window. But 540 00:25:52,240 --> 00:25:56,160 Speaker 10: October has been the quietest start to a month going 541 00:25:56,240 --> 00:25:58,280 Speaker 10: back to April, so when we were dealing with the 542 00:25:58,359 --> 00:26:02,480 Speaker 10: regional bank volatility. So there's a willingness with very manageable 543 00:26:02,600 --> 00:26:06,800 Speaker 10: maturity towers for issuers to sit this phase out. I 544 00:26:06,880 --> 00:26:09,399 Speaker 10: think you're likely to see side this smaller and shorter 545 00:26:09,520 --> 00:26:10,080 Speaker 10: as a result. 546 00:26:10,280 --> 00:26:13,760 Speaker 1: Bringing your debt world over to economics, where is your 547 00:26:13,880 --> 00:26:17,000 Speaker 1: real yield out six months out of year, we've got 548 00:26:17,040 --> 00:26:20,080 Speaker 1: a two thirty five level ten year inflation adjusted yield. 549 00:26:20,119 --> 00:26:23,920 Speaker 1: Where do you see that out of year, say out 550 00:26:23,960 --> 00:26:24,240 Speaker 1: a year? 551 00:26:24,400 --> 00:26:26,000 Speaker 10: I think, you know, I think we're going to be 552 00:26:26,119 --> 00:26:29,200 Speaker 10: rangebound for an extended period of time here. We don't 553 00:26:29,240 --> 00:26:33,000 Speaker 10: see cuts playing into the equation until at least past 554 00:26:33,040 --> 00:26:36,120 Speaker 10: September of next year. So a year out, maybe we're 555 00:26:36,160 --> 00:26:39,000 Speaker 10: seeing some reduction from current levels, but I think we've 556 00:26:39,000 --> 00:26:41,040 Speaker 10: got a ways to go before we see that play out. 557 00:26:41,200 --> 00:26:44,040 Speaker 4: Are we learning, Megan, that this is a corporate and 558 00:26:44,760 --> 00:26:48,160 Speaker 4: consumer structure in the US economy that can handle five 559 00:26:48,240 --> 00:26:50,920 Speaker 4: percent rates for a longer period of time or is 560 00:26:50,960 --> 00:26:53,840 Speaker 4: the lags? Have the lags just gotten much much longer? 561 00:26:55,280 --> 00:26:58,000 Speaker 10: In investment grade, I think things are reasonably well insulated. 562 00:26:58,080 --> 00:27:00,800 Speaker 10: You only have seven percent of maturities do over the 563 00:27:00,880 --> 00:27:04,240 Speaker 10: next twelve months, and it's closer to seventeen where we've 564 00:27:04,280 --> 00:27:06,640 Speaker 10: got greater concerns. It's probably on the high yield side 565 00:27:06,680 --> 00:27:10,359 Speaker 10: where those maturity towers are definitively looming. So looking at 566 00:27:10,359 --> 00:27:13,119 Speaker 10: both bonds and loans, so I think it's going to 567 00:27:13,160 --> 00:27:14,840 Speaker 10: be have and have k nots as we look at 568 00:27:14,840 --> 00:27:15,440 Speaker 10: the path ahead. 569 00:27:15,720 --> 00:27:18,480 Speaker 3: I Megan thanks to Bamitis, I can cripe of Bancleys 570 00:27:18,520 --> 00:27:20,480 Speaker 3: on the license with a fetspake sum much fet spake 571 00:27:20,680 --> 00:27:21,320 Speaker 3: this week. 572 00:27:31,080 --> 00:27:33,800 Speaker 1: With a historical perspective on this, Henrietta trays with Veta 573 00:27:33,880 --> 00:27:37,480 Speaker 1: partners here on how Washington will respond. Henriette, to John 574 00:27:37,520 --> 00:27:40,359 Speaker 1: Farrell's point there, it is about a let us go 575 00:27:40,440 --> 00:27:45,040 Speaker 1: back to nineteen seventy three Nixon and Kissinger and basically 576 00:27:45,200 --> 00:27:49,320 Speaker 1: they did an airlift to Israel. Does Congress want to 577 00:27:49,359 --> 00:27:55,040 Speaker 1: support President Biden if an airlift is required to support Israel? 578 00:27:56,920 --> 00:27:57,639 Speaker 11: I think they do. 579 00:27:58,040 --> 00:28:00,840 Speaker 12: I think they're very eager to start taking boats on 580 00:28:00,960 --> 00:28:05,440 Speaker 12: all kinds of aid, whether that is munitions, extra enforcement 581 00:28:05,480 --> 00:28:08,040 Speaker 12: of the Iron Dome, anything that the president needs on 582 00:28:08,320 --> 00:28:11,359 Speaker 12: a military basis. And then there's also a strong desire 583 00:28:11,400 --> 00:28:14,400 Speaker 12: to provide financial aid. We just heard from your great 584 00:28:14,440 --> 00:28:16,760 Speaker 12: reporter in Tel Aviv that they're looking for ten billion 585 00:28:16,840 --> 00:28:20,639 Speaker 12: dollars on the Israel front. I would not be surprised 586 00:28:20,680 --> 00:28:23,240 Speaker 12: if when that gets over to Capitol Hill they try 587 00:28:23,280 --> 00:28:24,879 Speaker 12: to increase that dollar figure. 588 00:28:25,000 --> 00:28:27,720 Speaker 11: That's usually what happens as members seek to sort of 589 00:28:28,160 --> 00:28:29,680 Speaker 11: illustrate their support for the nation. 590 00:28:29,920 --> 00:28:32,639 Speaker 1: Henrietta, you are an expert on the body language of 591 00:28:32,760 --> 00:28:36,679 Speaker 1: Capitol Hill. I think of John Huntsman, Junior, former governor 592 00:28:36,720 --> 00:28:39,840 Speaker 1: of Utah. His family has pulled money in the last 593 00:28:39,920 --> 00:28:43,040 Speaker 1: twenty four hours or stop donations to the University of 594 00:28:43,120 --> 00:28:47,920 Speaker 1: Pennsylvania over some of the debate and protest there. How 595 00:28:47,960 --> 00:28:51,080 Speaker 1: are the congress people that we have, how are they 596 00:28:51,160 --> 00:28:53,920 Speaker 1: reading the mood of America on this war? 597 00:28:55,160 --> 00:28:56,400 Speaker 11: You know, that's a great question. 598 00:28:56,520 --> 00:29:00,760 Speaker 12: I think the fallout is only beginning there as right 599 00:29:00,840 --> 00:29:03,440 Speaker 12: now we're sort of in the immediate aftermath where there's 600 00:29:04,520 --> 00:29:07,560 Speaker 12: reticence to come out in opposition to anything that Israel 601 00:29:07,680 --> 00:29:10,280 Speaker 12: might need right now. But as we get into the 602 00:29:10,400 --> 00:29:13,480 Speaker 12: days and weeks ahead, I think, to echo some of 603 00:29:13,520 --> 00:29:16,400 Speaker 12: the commentary we heard from former President Bush, there's going 604 00:29:16,440 --> 00:29:18,720 Speaker 12: to be a loss of interest in this, which I 605 00:29:18,760 --> 00:29:22,000 Speaker 12: think is very real and born out by historical realities. 606 00:29:22,640 --> 00:29:24,680 Speaker 11: And what happens is you start to get factions. 607 00:29:25,000 --> 00:29:29,080 Speaker 12: Already, there are a number of bills targeted at penalizing 608 00:29:29,360 --> 00:29:33,640 Speaker 12: in some way the Biden administration for the six million 609 00:29:33,720 --> 00:29:35,120 Speaker 12: dollars from Iran. 610 00:29:35,600 --> 00:29:37,240 Speaker 11: That's only going to get exacerbated. 611 00:29:37,320 --> 00:29:40,000 Speaker 12: So I think people are really reticent to voice their 612 00:29:40,080 --> 00:29:43,720 Speaker 12: folsome views on where things are with either Gaza and 613 00:29:43,880 --> 00:29:48,000 Speaker 12: Palestinians Hamas or the Israelis, and that will probably foment 614 00:29:48,200 --> 00:29:50,480 Speaker 12: in the days ahead and get more aggressive. 615 00:29:50,720 --> 00:29:53,280 Speaker 3: Unlike Youkraying, do you expect that opposition to come from 616 00:29:53,520 --> 00:29:56,160 Speaker 3: within his own partsy, within the president's own potsy. 617 00:29:58,160 --> 00:30:00,800 Speaker 11: I think it's going to come from a whole bunch 618 00:30:00,880 --> 00:30:01,840 Speaker 11: of different outlets. 619 00:30:02,040 --> 00:30:05,720 Speaker 12: You have a pretty far right, extreme sort of anti 620 00:30:05,840 --> 00:30:08,600 Speaker 12: Semitic component, and then you also have a very far 621 00:30:08,760 --> 00:30:11,760 Speaker 12: left pro Palestinian component, and both of those are just 622 00:30:11,840 --> 00:30:14,920 Speaker 12: going to get louder in the days ahead, and especially 623 00:30:15,080 --> 00:30:16,800 Speaker 12: as the ground invasion starts. 624 00:30:17,280 --> 00:30:19,200 Speaker 11: There's a lot of attention on that right now. 625 00:30:19,240 --> 00:30:22,240 Speaker 12: Obviously, Secretary of State link and is heavily focused on 626 00:30:22,360 --> 00:30:26,000 Speaker 12: containment and making sure this does not escalate. The Biden 627 00:30:26,040 --> 00:30:29,400 Speaker 12: administrations move two aircraft carriers into the arena right now 628 00:30:29,480 --> 00:30:32,280 Speaker 12: to try to make sure that that doesn't happen. But 629 00:30:32,400 --> 00:30:34,840 Speaker 12: that escalation is something to really be mindful of, and 630 00:30:35,320 --> 00:30:38,600 Speaker 12: I think the extreme positions exist across the political spectrum. 631 00:30:38,680 --> 00:30:41,760 Speaker 3: There is also talk about American troops here. Henrietta. I 632 00:30:41,880 --> 00:30:44,160 Speaker 3: shared this story with our audience in the previous hour. 633 00:30:44,200 --> 00:30:45,800 Speaker 3: I'll do it again for people just joining us from 634 00:30:45,800 --> 00:30:48,800 Speaker 3: the Wall Street Journal. According to US defense officials that 635 00:30:49,200 --> 00:30:51,520 Speaker 3: the US military is selected roughly two thousand troops to 636 00:30:51,560 --> 00:30:54,640 Speaker 3: prepare for a potential deployment support Israel. The troops are 637 00:30:54,680 --> 00:30:58,160 Speaker 3: tasked with missions like advising medical support. Important to points 638 00:30:58,200 --> 00:31:00,720 Speaker 3: out what they're not there for. We aren't intended to 639 00:31:00,760 --> 00:31:03,840 Speaker 3: serve in a combat role. No inventory have been put 640 00:31:03,880 --> 00:31:06,760 Speaker 3: on prepared to deploy order. And this as well, it 641 00:31:06,920 --> 00:31:10,240 Speaker 3: isn't clear under the circumstances the US would actually deploy 642 00:31:10,320 --> 00:31:13,400 Speaker 3: the troops or to wear Henry talk to me about 643 00:31:13,400 --> 00:31:15,280 Speaker 3: support for that in Washington currently. 644 00:31:16,680 --> 00:31:19,440 Speaker 12: I don't think support for troop deployment is there, just 645 00:31:19,560 --> 00:31:24,320 Speaker 12: as we saw with Ukraine. The most fascinating stories come 646 00:31:24,360 --> 00:31:27,160 Speaker 12: from the sort of personal anecdotes of Americans going over 647 00:31:27,240 --> 00:31:29,800 Speaker 12: to Israel to sort of volunteer. But I don't think 648 00:31:29,840 --> 00:31:32,440 Speaker 12: troop deployment is something that this administration is prepared for. 649 00:31:32,800 --> 00:31:34,720 Speaker 12: As I mentioned before, I think their effort is to 650 00:31:35,360 --> 00:31:39,880 Speaker 12: contain and prevent escalation that might ultimately require something like 651 00:31:39,920 --> 00:31:40,520 Speaker 12: TRUP deployment. 652 00:31:40,560 --> 00:31:42,160 Speaker 11: We're happy to throw money at the problem. 653 00:31:42,400 --> 00:31:44,040 Speaker 12: I think there are more than enough votes for that, 654 00:31:44,200 --> 00:31:46,760 Speaker 12: and indeed, what I've been telling clients is not only 655 00:31:46,800 --> 00:31:48,760 Speaker 12: there are their votes for the funding, but the funding 656 00:31:49,160 --> 00:31:52,000 Speaker 12: is so popular that it can carry other things like 657 00:31:52,120 --> 00:31:54,760 Speaker 12: a to Ukraine, a to the US Mexico border, and 658 00:31:54,800 --> 00:31:55,880 Speaker 12: probably a government. 659 00:31:55,600 --> 00:31:57,240 Speaker 11: Shutdown avoiding position. 660 00:31:57,720 --> 00:31:59,720 Speaker 12: But I don't think troop deployment is something that any 661 00:31:59,760 --> 00:32:01,400 Speaker 12: member or would voluntarily talk to you about. 662 00:32:01,440 --> 00:32:03,160 Speaker 3: Right now, just quickly, speaking of vout, it's going to 663 00:32:03,160 --> 00:32:05,000 Speaker 3: squeeze this in in about twenty seconds if we can. 664 00:32:05,400 --> 00:32:06,960 Speaker 5: Will we have a speake upon the end of the week. 665 00:32:09,120 --> 00:32:12,400 Speaker 12: I have no reason to update my priors, to be honest. 666 00:32:13,120 --> 00:32:16,040 Speaker 12: I mean, they don't have a bill requesting aid to Israel. 667 00:32:16,200 --> 00:32:19,600 Speaker 12: They don't need a government funding bill until November seventeenth. 668 00:32:19,760 --> 00:32:21,400 Speaker 11: I fail to see the urgency, Hendra. 669 00:32:21,520 --> 00:32:24,320 Speaker 5: Thank you Henritta Trice that a fight upon this on 670 00:32:24,360 --> 00:32:24,920 Speaker 5: the light Tisk. 671 00:32:25,120 --> 00:32:28,920 Speaker 1: Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify and 672 00:32:29,080 --> 00:32:33,240 Speaker 1: anywhere else you get your podcasts. Listen live every weekday 673 00:32:33,560 --> 00:32:37,000 Speaker 1: starting at seven am Eastern. I'm Bloomberg dot Com, the 674 00:32:37,200 --> 00:32:41,640 Speaker 1: iHeartRadio app, tune In, and the Bloomberg Business app. You 675 00:32:41,760 --> 00:32:45,800 Speaker 1: can watch us live on Bloomberg Television and always I'm 676 00:32:45,800 --> 00:32:49,760 Speaker 1: the Bloomberg Terminal. Thanks for listening. I'm Tom Keane, and 677 00:32:49,920 --> 00:32:51,440 Speaker 1: this is Bloomberg 678 00:33:01,440 --> 00:33:02,040 Speaker 6: In the East.