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Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best and economics, geopolitics, finance and investment.
Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and
Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com,
Speaker 1: the Bloomberg Criminal and the Bloomberg Business App. This is
Speaker 1: without the question for this week the interview. For those
Speaker 1: of you on radio and television worldwide are saying forget
Speaker 1: the fancy talk talk common sense. Robert Dahl has decades
Speaker 1: of experience enjoying losses in the equity markets. He's a
Speaker 1: crossmark global investments and is a needed conversation this morning.
Speaker 1: I want you to address the retirees, the institutions who
Speaker 1: are very forty within the sixty forty split. You and
Speaker 1: I have never witnessed price declines in bonds like this.
Speaker 1: What is the to do for the people that have
Speaker 1: been hammered in bonds?
Speaker 2: As you know, if we don't get a nice rally
Speaker 2: in the bond market in the fourth quarter, it will
Speaker 2: be the third year of losses for a tenured treasury.
Speaker 2: That has never happened before in history. So these people
Speaker 2: are sticker shocks, shell shock, whatever.
Speaker 1: They want to they shift equities.
Speaker 2: Look, depends on your time horizon. If you have a
Speaker 2: long time horizon, you're sixty five and you're retiring in
Speaker 2: your good health, have more equities here?
Speaker 1: Always looking at me?
Speaker 3: Well, you say, do you shift to equities? Let's dig
Speaker 3: deeper into that. Do you realize these losses in the
Speaker 3: bond market, that's essentially the question Tom's asking here, or
Speaker 3: do you sit on them?
Speaker 1: Yeah?
Speaker 2: So I don't think you run for the hills in
Speaker 2: the bond market. I don't think we've seen the high
Speaker 2: end yield. Look, you've been debating wire yields up. They're
Speaker 2: up because the economy is a little bited, and expected
Speaker 2: inflation's nowhere close to two and is stubborn, and you
Speaker 2: got the supply demand thing that rears its ugly head
Speaker 2: every once in a while. That's not an environment to
Speaker 2: see a three handle in at ten year treasury.
Speaker 4: And right now we're wondering whether bank earnings are indicative
Speaker 4: of the broader economy or whether they're an outlier at
Speaker 4: a time where they're consolidating their business in a smaller
Speaker 4: number of high income individuals. What's your view. How much
Speaker 4: of a tell has the early earnings report been.
Speaker 2: That's a great, great point you're making, that is to say,
Speaker 2: bank airrings are probably a little less useful than usual,
Speaker 2: a little less useful for overall earnings. My big surprise
Speaker 2: you touched on is second ago is we haven't seen
Speaker 2: more consolidation in the banking industry post the debacle in April.
Speaker 2: My thought was we're going to see more bank combinations,
Speaker 2: and there's been. There's been precious few. There will be
Speaker 2: more to come. We need fewer banks.
Speaker 4: At this point, though, given the fact that you're still
Speaker 4: seeing credit extended in the economy, do you think to
Speaker 4: put these two ideas together with the bond market, that
Speaker 4: bond deals could go even higher on the long end,
Speaker 4: and that actually Meghan Graper is correct, and the bond
Speaker 4: market is telling the FED they need to do more
Speaker 4: on the front end, and not that they have to
Speaker 4: let the long end do the work.
Speaker 1: I agree with you.
Speaker 2: Is the long end doing some of the Fed's work
Speaker 2: for them, Absolutely, but that's proving not to be enough.
Speaker 2: The Fed, I don't believe is done. You know, we
Speaker 2: said along either November or December. I think it's more
Speaker 2: likely December. But I still want to come to the point.
Speaker 2: More important than when the FED. If the FED raises
Speaker 2: rates again, is what about the impact from zero to
Speaker 2: five and a quarter In the last eighteen months, we
Speaker 2: have not seen the full impact of that lease. And
Speaker 2: I think that's still in front of us.
Speaker 3: Let's talk about the banks and build on the white
Speaker 3: Tom start this conversation. Many of these banks are sitting
Speaker 3: on some securities very long dated well when rates were
Speaker 3: very low. Now rates are higher, They're underwater, is what
Speaker 3: Bank of America and the CFO is saying about them.
Speaker 3: Expect zero losses from the how to maturity securities. I
Speaker 3: think we all understand that what gets them out of
Speaker 3: the penalty box regarding this story, because that stuff has
Speaker 3: been bullied by this story.
Speaker 2: All yeah, yeah, because they're big numbers and that it's legitimate.
Speaker 2: Some banks had to mark the market, and we know
Speaker 2: what happened back back in April. Look, these things will
Speaker 2: mature and they'll they'll be at a zero loss at
Speaker 2: that point in time. But it's so big and it's
Speaker 2: so pervasive. I don't know how you can hide behind
Speaker 2: that anymore.
Speaker 1: To your brilliant question, John, I'm sorry, you're one hundred
Speaker 1: percent correct. The idea of how the maturity is bs
Speaker 1: in any textbook. You go to Lehigh University a million
Speaker 1: years ago and young doll was going, that's bologne. Let's
Speaker 1: talk real blog here. I want to talk about your
Speaker 1: CPA background in the fans warton degree you've got, which
Speaker 1: is about accounting, accounting, accounting. The absolute shock of the
Speaker 1: Gloom Crew has been margin resiliency. That's an IMF term.
Speaker 1: Everybody's resilient. I was resilient over my Moroccan coffee. Are
Speaker 1: we resilient right now in our margins?
Speaker 2: I don't think so.
Speaker 1: You're going to see margins giveaway.
Speaker 2: I think margins will come under some pressure. We're early
Speaker 2: in the reporting season and they've held up reasonably well.
Speaker 2: But I don't see how companies can continue with these
Speaker 2: big price increases to match their cost increase. Look at
Speaker 2: the labor wage gains.
Speaker 1: Okay, so are you in cash? I mean this is
Speaker 1: the negative. This is the gloomy doll we're seeing this.
Speaker 2: So we have more defensive securities. I want securities stocks
Speaker 2: that have high earnings predictability, high earnings persistence, good cash flow,
Speaker 2: and reasonable valuations, and that means you're away from the
Speaker 2: economy to some degree.
Speaker 1: That's Apple, Microsoft, and Manchester.
Speaker 2: United Those it fit the bill.
Speaker 1: Definitely.
Speaker 2: I double up on Manchester. The HMOs fit the bill.
Speaker 2: Some software companies fit that bill. It's what are the
Speaker 2: companies that you're pretty sure six months from now will
Speaker 2: deliver the earnings that are expected. I think a lot
Speaker 2: of companies will miss on earnings as the economy slows,
Speaker 2: whether we get a recession or not. That's escaped almost
Speaker 2: everybody's vocabulary. I don't think it's out out of the
Speaker 2: picture for next year.
Speaker 1: Walmart present p E almost a thirty multiple. I don't
Speaker 1: get it.
Speaker 3: How many times this year have we heard about a
Speaker 3: weekly consumer all times? We said on this program the economist,
Speaker 3: the crime recession, do you see it actually materialize in
Speaker 3: this quarter? What are the sources of demand that's hound
Speaker 3: at this economy, but you can identify that are fading currently.
Speaker 2: So the amount of cash on the balance sheets, the
Speaker 2: excess cash from the pandemic that has definitely come down.
Speaker 2: We can debate whether it's almost over still half a
Speaker 2: trillion or whatever, but it's not three and a half
Speaker 2: trillion where it was two. Starting to see a fewer
Speaker 2: people work multiple jobs, and that's often a lead indicator
Speaker 2: into the job market. It's not a long list. At
Speaker 2: this point. You have to look at the lead indicators
Speaker 2: for the employment cycle, and they are getting to the
Speaker 2: point now where eighteen twenty four months after the Fed
Speaker 2: starts raising rates, after the yield curve begins to invert.
Speaker 5: We just we just have no patience.
Speaker 1: Somebody went back.
Speaker 2: And looked at these periods in the past between Fed
Speaker 2: raising rates, yield curve inverting, and the start of recession.
Speaker 2: The dialogue is always out of recession, it's never coming,
Speaker 2: and then all of a sudden, there it is.
Speaker 3: Jobless claims coincidental indicator saying it's not here.
Speaker 5: Isn't it?
Speaker 2: No, it's not here yet that's correct.
Speaker 5: Still in and around tondray Kine.
Speaker 1: Grig Dako joins us NOW chief economist E Y as
Speaker 1: he considers this across all the advantages of the EY system.
Speaker 1: The market was were you yes?
Speaker 6: I think the surprise was both in terms of the
Speaker 6: strength of the data in September, but also, as you
Speaker 6: mentioned the upward revision for the month of August, we
Speaker 6: are seeing that consumers spent more than we initially thought
Speaker 6: over the course of the summer. The key question is
Speaker 6: twofold One, do we see that momentum persist into the
Speaker 6: fourth quarter or do we see a little bit of
Speaker 6: a pullback after the strong summer?
Speaker 1: Two?
Speaker 6: Is it inflationary growth? To your question about whether the
Speaker 6: Fed will have to go further in terms of raising rates,
Speaker 6: so far we haven't seen the type of inflationary dynamics
Speaker 6: that would be aligned with this strong growth. I think
Speaker 6: that would allow the Fed to not necessarily have to
Speaker 6: tighten further.
Speaker 1: Are we in the thrall still of pandemic uncertainty? Do
Speaker 1: you have a belief to Q four? Can you model
Speaker 1: out Q one Q two of twenty twenty four, or
Speaker 1: are you just making it up because this is a
Speaker 1: regional macroeconomics.
Speaker 6: Well, I think it's very difficult, certainly to forecast in
Speaker 6: the current environment. We have a set of unique features
Speaker 6: when it comes to the state of the labor market,
Speaker 6: we have a set of unique features when it comes
Speaker 6: to the state of the housing market. When it comes
Speaker 6: to the resilience of consumers, even we've been surprised as
Speaker 6: to how resilient consumers are. But I would note a
Speaker 6: few things.
Speaker 5: First, we are.
Speaker 6: Seeing the drag from higher prices weighing on consumers' ability
Speaker 6: to spend as we move forward, especially for lower income families.
Speaker 6: We're seeing the weight of higher interest rates weighing on
Speaker 6: people's ability and desire to spend on credit. We're seeing
Speaker 6: tightening credit conditions, and we are seeing the effect of
Speaker 6: tighter financial conditions even today.
Speaker 5: Okay, this is what.
Speaker 4: People have been saying. FED officials included in anecdotal conversations
Speaker 4: that they've been having with their constituents. They're hearing about this.
Speaker 4: So then why does the data keep coming in strong
Speaker 4: because an expected read after read.
Speaker 6: Well, again, this is still the third quarter, right, we
Speaker 6: had a strong third quarter. We know the spending in
Speaker 6: terms of consumer activity was very strong in the third quarter.
Speaker 6: We also know we're not seeing a retrenchment that is
Speaker 6: one of the key elements of this economy. We're not
Speaker 6: seeing the business sector retrench, whether it's in terms of
Speaker 6: investment or hiring, that it's still supportive of income and
Speaker 6: in turn that has allowed consumer to spend. The key
Speaker 6: question is whether this type of momentum, very strong momentum
Speaker 6: in the third quarter, can really persist into the fourth
Speaker 6: and into the first of next year.
Speaker 4: You said something that was really important that it's unclear
Speaker 4: whether this type of spending is inflationary. What is going
Speaker 4: to be the tell on that, Because it seems like
Speaker 4: if people are willing to pay higher prices and companies
Speaker 4: are passing them along again to PEPSI or co cod,
Speaker 4: you've got sh inflation and all that. Well, why wouldn't
Speaker 4: this be inflationary? Why would inflation keep dropping?
Speaker 6: Well, we've continued to see slower momentum when it comes
Speaker 6: to CPI prices, when it comes to PPI prices, even
Speaker 6: the margins on the PPI front are pointing to less
Speaker 6: inflation on a sequential momentum basis. Even the jobs report
Speaker 6: last Friday that was very strong, it was non inflationary.
Speaker 6: We were seeing the help from the supply side help
Speaker 6: alleviate some of the wage pressures and bring down wage growth.
Speaker 6: So that's less inflationary then would be concerning for the FED.
Speaker 6: And we've seen actually inflation run ahead of the Fed's expectations.
Speaker 6: I wouldn't be surprised that we end up below the
Speaker 6: Fed's SEP projections in terms of inflation by year end.
Speaker 1: Greg daco E y with us will continue here a
Speaker 1: five point one five percent in the two years. The
Speaker 1: ten year yield really buttressed out right to recent highs
Speaker 1: four point eight zero percent. Thirty year bond a dash
Speaker 1: to five percent four point ninety four percent. Michael McKee
Speaker 1: further observation.
Speaker 7: Well, I think the auto sales is an interesting situation,
Speaker 7: and we don't know how much of that is parts
Speaker 7: and repairs. But given the fact that we had a
Speaker 7: strike and maybe that's got people to go buy cars
Speaker 7: while they thought they could. But at nine fifteen this
Speaker 7: morning Eastern, we get the industrial production numbers and we'll
Speaker 7: see about auto manufacturing, see if that is a sort
Speaker 7: of counterweight to the auto sales. If we're just selling
Speaker 7: what's on the lot and you're not going to have
Speaker 7: any more, then that is less of a problem for
Speaker 7: the FED. But it's an interesting dynamic.
Speaker 1: But for four years we've missed, simply missed guests, the
Speaker 1: resiliency of the consumer. What are the economists doing wrong?
Speaker 7: It's an interesting question because we always used to say
Speaker 7: before the pandemic, never stand between an American and a
Speaker 7: cash register, and that seems to be back in force.
Speaker 7: There was a shift in spending. Everybody went to goods
Speaker 7: during the pandemic, and then everybody did revenge travel and
Speaker 7: went to services. And now it seems to be broadening
Speaker 7: out so that people are just continuing to spend. But
Speaker 7: we thought that their money would run out and it hasn't.
Speaker 7: It may be the additional wage gains that people have gotten,
Speaker 7: because people tend to spend what they make, and now
Speaker 7: if we've spent down the pandemic bonuses, it may be
Speaker 7: that people got raises and they feel like they can
Speaker 7: spend more.
Speaker 4: Greg just final word here, does that mean that this
Speaker 4: world can live with five percent patchmark rates? And that
Speaker 4: we're looking at a new term structure that looks very
Speaker 4: different to what he did it three years ago.
Speaker 6: Well, we certainly have to adapt to a higher cost
Speaker 6: of capital. Think there's no doubt that we have to
Speaker 6: have both the business sector and the consumer sector adapt
Speaker 6: to this higher cost of capital. I would point to
Speaker 6: one thing that is very important in this higher cost
Speaker 6: of capital environment, how strong income is. If we start
Speaker 6: to see softening in income, which we have seen, that
Speaker 6: will weigh on people's ability to spend. But there's no
Speaker 6: doubt that we're not going back to the free money era.
Speaker 6: People still want to invest in this environment, but there's
Speaker 6: going to be more scrutiny as to how much investment
Speaker 6: goes into the economy and how much hiring goes in
Speaker 6: road To.
Speaker 1: Find a quick question which matters most the November meeting
Speaker 1: November one or do we dash to December? Which meeting
Speaker 1: is of greater value to Greg Bako.
Speaker 6: I think both meetings are going to be quite interesting
Speaker 6: because even if we don't get a rate hike at
Speaker 6: the upcoming November meeting, we'll get a discussion and more
Speaker 6: information coming out of Fetcher Powell as to the intentions
Speaker 6: of the FED going into the last meeting of the year.
Speaker 6: They will want to maintain that optionality of one more meeting,
Speaker 6: but I think they're increasingly taking comfort in the fact
Speaker 6: that the July rate hike may have been this last
Speaker 6: rate hike in the system tightening cycle.
Speaker 7: Interesting time we see this. The November meeting hasn't changed
Speaker 7: in terms of futures pricing nine point eight percent, but
Speaker 7: now we're up to thirty one percent for December exactly.
Speaker 1: I think maybe this is the moment where we launch
Speaker 1: out to I believe it's December thirteenth. Greg Daco, thank
Speaker 1: you so much. With e y Ernst and young true
Speaker 1: Ntta Rogen joins us owns the high ground on the
Speaker 1: major banks and particularly Fortress Solomon, or at least Igloo
Speaker 1: Solomon as it is. Let me just go to a
Speaker 1: general and open question right now, your thoughts. I'm looking
Speaker 1: at different stories here saying it was a Moldi quarter
Speaker 1: because of the right downs, but your thoughts.
Speaker 8: Free not necessarily because of the they're pulled back from
Speaker 8: consumer lending. It was a Mouldi quarter. This is again
Speaker 8: a transition quarter. We talked about the second quarter for
Speaker 8: Goldman Sachs being a kitchen sing quarter. They are doing
Speaker 8: this strategy pivot owned up to their mistake with the
Speaker 8: consumer banking foray and locked in a lot of the
Speaker 8: losses and the hits from backing out of that in
Speaker 8: the second quarter. Some of it is reflected in the
Speaker 8: third quarter as well, but the lot of the losses
Speaker 8: are also just straight tied up to the real estate
Speaker 8: market and also the fact that the investment banking market
Speaker 8: remains sluggish. That's what's driving profits down thirty three percent.
Speaker 8: Not necessarily some of the changes you're seeing there, they're
Speaker 8: significant from a strategy perspective, not necessarily a third quarter
Speaker 8: earnings perspective.
Speaker 9: For Goldman Sax.
Speaker 5: What is Agloo Solomon?
Speaker 3: It's a smaller okay, smaller icy Fortress asked the question.
Speaker 4: For that, It was melting.
Speaker 1: Forts is like big and we're doing this, and we're
Speaker 1: doing this is what Jane Fraser wants to do. These
Speaker 1: guys want to Can we just get back to what
Speaker 1: we used to do in a smaller format?
Speaker 5: Okay, just want to do it. That was wonderful.
Speaker 9: Fortress is also a lot more sturdy than an Igloo.
Speaker 3: Okay, Okay, you're both taking aren't you. Are you saying
Speaker 3: that things are sturdier at JP Morgan Right now, the
Speaker 3: guy I was just trying to explain, Okay, I'm making
Speaker 3: a career out of that. Okay, of the forces that
Speaker 3: have had this bank back and things getting better or worse.
Speaker 8: It's headed in a new direction, not necessarily better or worse,
Speaker 8: because they will have to execute it is a story
Speaker 8: that they have to tell.
Speaker 9: They have a coherent story to tell.
Speaker 1: Now.
Speaker 8: You could argue that there was some flip flopping over
Speaker 8: the last couple of years, but at least now it's clear.
Speaker 8: They say they have two important legs to the stool,
Speaker 8: the investment bank and the asset and wealth management unit.
Speaker 8: Now the key is to prove that they can deliver
Speaker 8: on both fronts to the expectations of investors and therefore
Speaker 8: drive the stock higher with higher multiples down the road.
Speaker 4: What can we learn from the fact the Goldman Sachs
Speaker 4: beat on equity trading revenue at a time we saw JP,
Speaker 4: Worman and City Group not.
Speaker 8: It's interesting look over the last few years the crown
Speaker 8: for equity trading champion on Wall Street has been moving
Speaker 8: around with Goldman Sacks, Moment, Stanley, JP Morgan. It was
Speaker 8: pre pandemic least for a few years. Unquestionably Morgan Stanley
Speaker 8: not so much post pandemic. That comes down to some
Speaker 8: credit you have to give to Goldman traders who have
Speaker 8: gained serious market share across equities, and Fick Bank of
Speaker 8: America had a big jump in their equity trading business,
Speaker 8: but that was off a lower base. Goldman's jump from
Speaker 8: two point six billion to two point nine billion a.
Speaker 9: Quarter, it's pretty significant.
Speaker 8: If you can hit three billion a quarter in equities,
Speaker 8: that's a pretty sturdy business.
Speaker 4: What's the difference between market share gains and writing a
Speaker 4: good market right A lot of people have raised questions
Speaker 4: about how robust capital markets are right now, given the
Speaker 4: fact that a lot of company are icing a lot
Speaker 4: of their transactions. How much is this just market share
Speaker 4: gain from European banks from smaller banks from each other,
Speaker 4: rather than really reflective of a good environment.
Speaker 8: Writing the gains is the factor of the overall wallet.
Speaker 8: An individual bank does not control that, But what they
Speaker 8: can control is the market share of the wallet that's available.
Speaker 8: And if you are gaining market share there, you're making progress.
Speaker 8: So even if the entire industry moves in a certain trend,
Speaker 8: if you're gaining within that, you will stand out at
Speaker 8: least eyes of investors straight now.
Speaker 3: Everyone's a bank canalyst. So some people listening to this
Speaker 3: and hearing phrases like house maturity, securities and all of
Speaker 3: this stuff regarded Bank for America, the stock's in a
Speaker 3: penalty box. It's down close to twenty percent. Yet today,
Speaker 3: can you explain what is coming on? Those longer de
Speaker 3: ety securities are underwater? We can all get that far.
Speaker 3: What's it stopping this bank from being able to do
Speaker 3: that is punishing this stock so much.
Speaker 8: The punishment in the stock simply goes to the fact
Speaker 8: that because they made that move, because they plowed their
Speaker 8: excess deposits a couple of years ago into some of
Speaker 8: these longer dated securities, that with the moves and interest
Speaker 8: rates that we've seen have been underwater, has meant that
Speaker 8: their securities portfolio is done one hundred and thirty one billion.
Speaker 8: That doesn't affect their earnings, but it does affect their
Speaker 8: earnings potential. Right if they had not had this money
Speaker 8: locked up there because it's all in health for maturity
Speaker 8: right now, if they didn't have that money locked up
Speaker 8: there and earning two point five percent, it could well
Speaker 8: have been earning four point five percent and five percent
Speaker 8: in a five percent world.
Speaker 1: Okay, this is brilliant, and I got like eight questions
Speaker 1: and we don't have time. What is the maturity right now?
Speaker 1: What is the average maturity of They're under a tenth
Speaker 1: of a trillion dollars?
Speaker 8: See, this is what I said about trying to deciber Tomkin.
Speaker 8: It can be very tricky and sometimes you just you
Speaker 8: got me there, Tom, I don't we don't know.
Speaker 1: Does Michael Barnow at the FED?
Speaker 9: I'm sure he does.
Speaker 1: Why don't we know? I don't understand why shareholders don't
Speaker 1: know the average maturity of any given banks held a
Speaker 1: maturity portfolio.
Speaker 9: They do break it down. If I pull up the results,
Speaker 9: I can probably figure out that number for you.
Speaker 3: The distinction industry is making, Tom is really important. This
Speaker 3: isn't about selling those securities at are lost. It's about
Speaker 3: earning potential, which is what I really wanted to break
Speaker 3: this down. So when they come out and they say
Speaker 3: things like we will have no losses realized on these securities,
Speaker 3: that's kind of meaningless, isn't it. Isn't it just that
Speaker 3: your earnings potential relative to say JP Morgan, is that
Speaker 3: much lower if you have a four.
Speaker 8: Hundred billion dollar securities portfolio. Let's make up a number,
Speaker 8: your five hundred billion dollar securities portfolio, and you're earning
Speaker 8: two point five percent instead of an average of four
Speaker 8: point five percent on that that's a two percent diage
Speaker 8: point difference, and that's a ten billion dollar earnings difference.
Speaker 9: That adds up, and that matters.
Speaker 8: That's the reason the stocks down twenty percent this year,
Speaker 8: was down even more last year, and that's not a
Speaker 8: good look over a near two year period.
Speaker 4: When it comes to earnings potential. Though we're not talking
Speaker 4: about extending loans for mortgages. Tama show of KBW on
Speaker 4: earlier saying that they've gotten out of the game pretty much.
Speaker 4: How much is this just simply being able to capture
Speaker 4: the differential to current market yields on safe loans to
Speaker 4: high income people versus the beta of what you got
Speaker 4: a pit the depositors, which is basically nothing.
Speaker 8: If they were down five percent, if they were down
Speaker 8: eight percent, and we're talking about how do they get
Speaker 8: to being down four percent or being flat for the year.
Speaker 8: That's the latter is what we're talking about. The reason
Speaker 8: they're down twenty percent, way worse than every other big
Speaker 8: US bank out there is largely down to this earnings
Speaker 8: potential because they are missing out, plain and simple.
Speaker 1: One final question, does David Solomon have a support of
Speaker 1: the board within your reporting? I give him very high
Speaker 1: marks for managing this, as you say, kitchen syk over
Speaker 1: to another quarter, but does he have the support of
Speaker 1: the board in this process.
Speaker 8: We don't have to guess on that front because last
Speaker 8: month Mike Mayer was able to extract a public nod
Speaker 8: of support from the Goldman Saxe board lead directors saying He's.
Speaker 9: Not going anywhere.
Speaker 1: What's Montag doing.
Speaker 8: Montag's there digging into numbers and clearly backing David Solomon.
Speaker 3: This is found personal for I would say the whole yes,
Speaker 3: so far, hasn't it? It's faun personal within the bank.
Speaker 3: I don't hear complaints from investors like we've heard complaints
Speaker 3: from sources within the institution.
Speaker 8: Undoubtedly there was dissatisfaction in the ranks. You can't get
Speaker 8: away from that. Part of it is Goldman screwed up
Speaker 8: on one front. Goldman Sax prides itself on excellence and
Speaker 8: in fact risk taking, and they have very little tolerance
Speaker 8: for it. But now that you're through the other side,
Speaker 8: now that you've copped up to your mistake. Now the
Speaker 8: story is do you then move on or does the
Speaker 8: rank and file still demand consequence?
Speaker 5: They're trying to move on straight.
Speaker 3: Thank you, sir Snadarajin there, I've blown Banks America and
Speaker 3: on Kelmut Saxony.
Speaker 1: Began. Graper joins us Don Global, co Head of Debt
Speaker 1: Capital Markets at Barclays. Megan, you note the disinversion out there,
Speaker 1: the yield curves doing what a yield curve should do.
Speaker 1: You suggest that extends the timeline for the Fed? How
Speaker 1: does disinversion change the Fed's timeline into two thousand and
Speaker 1: twenty four?
Speaker 10: Yeah, I mean, I think it's fair to say we've
Speaker 10: entered a far more complicated phase of this cycle. The
Speaker 10: market's really now in a daily tug of war with
Speaker 10: policymakers around the path of rates, and I think there's
Speaker 10: been a lot of misinterpreted signals this month. I think
Speaker 10: the real question in my mind is what Powell and
Speaker 10: other members of the FED opt to message this week
Speaker 10: ahead of blackouts in the context of what continues to
Speaker 10: be a rapidly evolving backdrop. But you've got, you know,
Speaker 10: a strong jose of reality for the market. Between employment
Speaker 10: data CPI PPI A you mish. I mean all of
Speaker 10: that combined, I think you know, plays into how markets
Speaker 10: are responding, particularly on the rate side. But I think
Speaker 10: we've read far too much into recent FED speak that
Speaker 10: implied that these higher rates might have actually done some
Speaker 10: of the heavy lifting. And what I think the market
Speaker 10: has failed to take into account is the nuance behind
Speaker 10: the why. I mean, why are financial conditions tighter? If
Speaker 10: it's the strength of the economy which is fueling these
Speaker 10: longer term interest rates, they may actually need to do more.
Speaker 10: And I think if you dug into Logan's commentary, he
Speaker 10: suggested as.
Speaker 1: Much in your head, what is the level of the
Speaker 1: ten year yield where Powell and company are overcome by events?
Speaker 1: Is it a five handle or is it something more
Speaker 1: subtle than that.
Speaker 10: I'm not sure they're really focused on a nominal yield
Speaker 10: as being the determining factor. I think it's more about
Speaker 10: financial conditions, tightening of financial conditions and buying themselves room
Speaker 10: to continue to evaluate the data.
Speaker 4: How much make and do you see a potential risk
Speaker 4: to credit as yields go higher and potentially the Fed
Speaker 4: does more, which, as you think, is your base case?
Speaker 10: Yeah, I mean I don't think we can underestimate how
Speaker 10: hard it is for risk assets to rally meaningfully here
Speaker 10: when treasuries are this volatile. And yet we are, with
Speaker 10: everything going on, seeing a very resilient credit market. I mean,
Speaker 10: three months spreadballs at the lowest level since the start
Speaker 10: of twenty twenty two. Spreads on the corporate indext are
Speaker 10: still hovering near the tights at one twenty four. So
Speaker 10: it's been a strikingly tame backdrop in the face of
Speaker 10: this elevated rate ball and even with some of the
Speaker 10: geopolitical overhang. I think as you talk to investors, what
Speaker 10: we're starting to see is a bit more polarization in
Speaker 10: terms of how accounts are approaching the market. So there's
Speaker 10: definitively more discipline being incorporated into in terms of investment decisions.
Speaker 10: If your total return focused, I think you're waiting for
Speaker 10: the dust to settle a bit on some of this
Speaker 10: intraday volatility. If your yield focused, there's a very attractive
Speaker 10: entry point here that we continue to see for insurance
Speaker 10: and pension money in particular.
Speaker 4: That's from the investor side, Megan. One reason why it's
Speaker 4: wonderful to speak with you is because you also speak
Speaker 4: with the corporate finance officers, and you understand the angst
Speaker 4: of paying more than ten percent yields at least if
Speaker 4: you take a look at some of the market rates
Speaker 4: for about a third of the high yield index. How
Speaker 4: much angs do you feel among corporate executives as they
Speaker 4: look out at their runway and wonder when they're going
Speaker 4: to have to actually face off with these higher interest payments.
Speaker 11: In investment grade.
Speaker 10: There's a decent amount of complacency talking to both treasury
Speaker 10: teams and CFOs as they think about evaluating markets here,
Speaker 10: in part because there's very functional market activity as and
Speaker 10: when they do need to come to market, so there's
Speaker 10: a degree of patients. I think we're seeing we are
Speaker 10: seeing a backlog build for this post earnings window. But
Speaker 10: October has been the quietest start to a month going
Speaker 10: back to April, so when we were dealing with the
Speaker 10: regional bank volatility. So there's a willingness with very manageable
Speaker 10: maturity towers for issuers to sit this phase out. I
Speaker 10: think you're likely to see side this smaller and shorter
Speaker 10: as a result.
Speaker 1: Bringing your debt world over to economics, where is your
Speaker 1: real yield out six months out of year, we've got
Speaker 1: a two thirty five level ten year inflation adjusted yield.
Speaker 1: Where do you see that out of year, say out
Speaker 1: a year?
Speaker 10: I think, you know, I think we're going to be
Speaker 10: rangebound for an extended period of time here. We don't
Speaker 10: see cuts playing into the equation until at least past
Speaker 10: September of next year. So a year out, maybe we're
Speaker 10: seeing some reduction from current levels, but I think we've
Speaker 10: got a ways to go before we see that play out.
Speaker 4: Are we learning, Megan, that this is a corporate and
Speaker 4: consumer structure in the US economy that can handle five
Speaker 4: percent rates for a longer period of time or is
Speaker 4: the lags? Have the lags just gotten much much longer?
Speaker 10: In investment grade, I think things are reasonably well insulated.
Speaker 10: You only have seven percent of maturities do over the
Speaker 10: next twelve months, and it's closer to seventeen where we've
Speaker 10: got greater concerns. It's probably on the high yield side
Speaker 10: where those maturity towers are definitively looming. So looking at
Speaker 10: both bonds and loans, so I think it's going to
Speaker 10: be have and have k nots as we look at
Speaker 10: the path ahead.
Speaker 3: I Megan thanks to Bamitis, I can cripe of Bancleys
Speaker 3: on the license with a fetspake sum much fet spake
Speaker 3: this week.
Speaker 1: With a historical perspective on this, Henrietta trays with Veta
Speaker 1: partners here on how Washington will respond. Henriette, to John
Speaker 1: Farrell's point there, it is about a let us go
Speaker 1: back to nineteen seventy three Nixon and Kissinger and basically
Speaker 1: they did an airlift to Israel. Does Congress want to
Speaker 1: support President Biden if an airlift is required to support Israel?
Speaker 11: I think they do.
Speaker 12: I think they're very eager to start taking boats on
Speaker 12: all kinds of aid, whether that is munitions, extra enforcement
Speaker 12: of the Iron Dome, anything that the president needs on
Speaker 12: a military basis. And then there's also a strong desire
Speaker 12: to provide financial aid. We just heard from your great
Speaker 12: reporter in Tel Aviv that they're looking for ten billion
Speaker 12: dollars on the Israel front. I would not be surprised
Speaker 12: if when that gets over to Capitol Hill they try
Speaker 12: to increase that dollar figure.
Speaker 11: That's usually what happens as members seek to sort of
Speaker 11: illustrate their support for the nation.
Speaker 1: Henrietta, you are an expert on the body language of
Speaker 1: Capitol Hill. I think of John Huntsman, Junior, former governor
Speaker 1: of Utah. His family has pulled money in the last
Speaker 1: twenty four hours or stop donations to the University of
Speaker 1: Pennsylvania over some of the debate and protest there. How
Speaker 1: are the congress people that we have, how are they
Speaker 1: reading the mood of America on this war?
Speaker 11: You know, that's a great question.
Speaker 12: I think the fallout is only beginning there as right
Speaker 12: now we're sort of in the immediate aftermath where there's
Speaker 12: reticence to come out in opposition to anything that Israel
Speaker 12: might need right now. But as we get into the
Speaker 12: days and weeks ahead, I think, to echo some of
Speaker 12: the commentary we heard from former President Bush, there's going
Speaker 12: to be a loss of interest in this, which I
Speaker 12: think is very real and born out by historical realities.
Speaker 11: And what happens is you start to get factions.
Speaker 12: Already, there are a number of bills targeted at penalizing
Speaker 12: in some way the Biden administration for the six million
Speaker 12: dollars from Iran.
Speaker 11: That's only going to get exacerbated.
Speaker 12: So I think people are really reticent to voice their
Speaker 12: folsome views on where things are with either Gaza and
Speaker 12: Palestinians Hamas or the Israelis, and that will probably foment
Speaker 12: in the days ahead and get more aggressive.
Speaker 3: Unlike Youkraying, do you expect that opposition to come from
Speaker 3: within his own partsy, within the president's own potsy.
Speaker 11: I think it's going to come from a whole bunch
Speaker 11: of different outlets.
Speaker 12: You have a pretty far right, extreme sort of anti
Speaker 12: Semitic component, and then you also have a very far
Speaker 12: left pro Palestinian component, and both of those are just
Speaker 12: going to get louder in the days ahead, and especially
Speaker 12: as the ground invasion starts.
Speaker 11: There's a lot of attention on that right now.
Speaker 12: Obviously, Secretary of State link and is heavily focused on
Speaker 12: containment and making sure this does not escalate. The Biden
Speaker 12: administrations move two aircraft carriers into the arena right now
Speaker 12: to try to make sure that that doesn't happen. But
Speaker 12: that escalation is something to really be mindful of, and
Speaker 12: I think the extreme positions exist across the political spectrum.
Speaker 3: There is also talk about American troops here. Henrietta. I
Speaker 3: shared this story with our audience in the previous hour.
Speaker 3: I'll do it again for people just joining us from
Speaker 3: the Wall Street Journal. According to US defense officials that
Speaker 3: the US military is selected roughly two thousand troops to
Speaker 3: prepare for a potential deployment support Israel. The troops are
Speaker 3: tasked with missions like advising medical support. Important to points
Speaker 3: out what they're not there for. We aren't intended to
Speaker 3: serve in a combat role. No inventory have been put
Speaker 3: on prepared to deploy order. And this as well, it
Speaker 3: isn't clear under the circumstances the US would actually deploy
Speaker 3: the troops or to wear Henry talk to me about
Speaker 3: support for that in Washington currently.
Speaker 12: I don't think support for troop deployment is there, just
Speaker 12: as we saw with Ukraine. The most fascinating stories come
Speaker 12: from the sort of personal anecdotes of Americans going over
Speaker 12: to Israel to sort of volunteer. But I don't think
Speaker 12: troop deployment is something that this administration is prepared for.
Speaker 12: As I mentioned before, I think their effort is to
Speaker 12: contain and prevent escalation that might ultimately require something like
Speaker 12: TRUP deployment.
Speaker 11: We're happy to throw money at the problem.
Speaker 12: I think there are more than enough votes for that,
Speaker 12: and indeed, what I've been telling clients is not only
Speaker 12: there are their votes for the funding, but the funding
Speaker 12: is so popular that it can carry other things like
Speaker 12: a to Ukraine, a to the US Mexico border, and
Speaker 12: probably a government.
Speaker 11: Shutdown avoiding position.
Speaker 12: But I don't think troop deployment is something that any
Speaker 12: member or would voluntarily talk to you about.
Speaker 3: Right now, just quickly, speaking of vout, it's going to
Speaker 3: squeeze this in in about twenty seconds if we can.
Speaker 5: Will we have a speake upon the end of the week.
Speaker 12: I have no reason to update my priors, to be honest.
Speaker 12: I mean, they don't have a bill requesting aid to Israel.
Speaker 12: They don't need a government funding bill until November seventeenth.
Speaker 11: I fail to see the urgency, Hendra.
Speaker 5: Thank you Henritta Trice that a fight upon this on
Speaker 5: the light Tisk.
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Speaker 6: In the East.