WEBVTT - Surveillance: Margin Pressure with Doll 0:00:00.080 --> 0:00:02.840 We bring you news and analysis every day on the 0:00:02.880 --> 0:00:06.840 Bloomberg Surveillance Podcast. But now you can get the latest 0:00:06.880 --> 0:00:11.639 news on demand whenever you want. Subscribe to Bloomberg News 0:00:11.640 --> 0:00:14.400 Now to get the latest headlines at the click of 0:00:14.440 --> 0:00:18.880 a button. Get informed on your schedule. You can listen 0:00:18.960 --> 0:00:22.720 and subscribe to Bloomberg News Now on the Bloomberg Business App, 0:00:22.760 --> 0:00:27.720 Bloomberg dot Com plus Apple, Spotify, and anywhere else you 0:00:27.800 --> 0:00:35.800 get your podcasts. Search Bloomberg News Now and subscribe today. 0:00:37.800 --> 0:00:41.160 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:41.159 --> 0:00:45.000 with Jonathan Farrow and Lisa Abramowitz. Join us each day 0:00:45.040 --> 0:00:49.520 for insight from the best and economics, geopolitics, finance and investment. 0:00:49.960 --> 0:00:54.760 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:54.960 --> 0:00:59.280 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:59.320 --> 0:01:03.120 the Bloomberg Criminal and the Bloomberg Business App. This is 0:01:03.160 --> 0:01:06.960 without the question for this week the interview. For those 0:01:07.000 --> 0:01:10.840 of you on radio and television worldwide are saying forget 0:01:10.920 --> 0:01:16.080 the fancy talk talk common sense. Robert Dahl has decades 0:01:16.400 --> 0:01:19.520 of experience enjoying losses in the equity markets. He's a 0:01:19.600 --> 0:01:24.360 crossmark global investments and is a needed conversation this morning. 0:01:24.440 --> 0:01:28.880 I want you to address the retirees, the institutions who 0:01:28.920 --> 0:01:32.480 are very forty within the sixty forty split. You and 0:01:32.560 --> 0:01:35.680 I have never witnessed price declines in bonds like this. 0:01:36.280 --> 0:01:38.600 What is the to do for the people that have 0:01:38.680 --> 0:01:40.200 been hammered in bonds? 0:01:40.600 --> 0:01:42.520 As you know, if we don't get a nice rally 0:01:42.560 --> 0:01:44.280 in the bond market in the fourth quarter, it will 0:01:44.280 --> 0:01:47.200 be the third year of losses for a tenured treasury. 0:01:47.360 --> 0:01:50.400 That has never happened before in history. So these people 0:01:50.520 --> 0:01:52.800 are sticker shocks, shell shock, whatever. 0:01:52.600 --> 0:01:53.840 They want to they shift equities. 0:01:54.360 --> 0:01:56.520 Look, depends on your time horizon. If you have a 0:01:56.520 --> 0:01:59.080 long time horizon, you're sixty five and you're retiring in 0:01:59.120 --> 0:02:01.120 your good health, have more equities here? 0:02:01.160 --> 0:02:01.800 Always looking at me? 0:02:02.520 --> 0:02:05.000 Well, you say, do you shift to equities? Let's dig 0:02:05.080 --> 0:02:07.960 deeper into that. Do you realize these losses in the 0:02:07.960 --> 0:02:10.560 bond market, that's essentially the question Tom's asking here, or 0:02:10.600 --> 0:02:11.600 do you sit on them? 0:02:11.960 --> 0:02:12.200 Yeah? 0:02:12.240 --> 0:02:14.679 So I don't think you run for the hills in 0:02:14.720 --> 0:02:16.440 the bond market. I don't think we've seen the high 0:02:16.520 --> 0:02:19.560 end yield. Look, you've been debating wire yields up. They're 0:02:19.600 --> 0:02:21.440 up because the economy is a little bited, and expected 0:02:21.600 --> 0:02:25.040 inflation's nowhere close to two and is stubborn, and you 0:02:25.160 --> 0:02:28.000 got the supply demand thing that rears its ugly head 0:02:28.000 --> 0:02:30.360 every once in a while. That's not an environment to 0:02:30.360 --> 0:02:32.160 see a three handle in at ten year treasury. 0:02:32.320 --> 0:02:35.880 And right now we're wondering whether bank earnings are indicative 0:02:35.919 --> 0:02:38.680 of the broader economy or whether they're an outlier at 0:02:38.680 --> 0:02:41.600 a time where they're consolidating their business in a smaller 0:02:41.680 --> 0:02:45.639 number of high income individuals. What's your view. How much 0:02:45.639 --> 0:02:48.520 of a tell has the early earnings report been. 0:02:48.919 --> 0:02:51.720 That's a great, great point you're making, that is to say, 0:02:51.840 --> 0:02:54.919 bank airrings are probably a little less useful than usual, 0:02:55.240 --> 0:02:59.120 a little less useful for overall earnings. My big surprise 0:02:59.200 --> 0:03:01.160 you touched on is second ago is we haven't seen 0:03:01.160 --> 0:03:06.240 more consolidation in the banking industry post the debacle in April. 0:03:06.400 --> 0:03:08.679 My thought was we're going to see more bank combinations, 0:03:08.680 --> 0:03:10.960 and there's been. There's been precious few. There will be 0:03:11.000 --> 0:03:13.560 more to come. We need fewer banks. 0:03:13.680 --> 0:03:15.560 At this point, though, given the fact that you're still 0:03:15.600 --> 0:03:18.480 seeing credit extended in the economy, do you think to 0:03:18.520 --> 0:03:21.360 put these two ideas together with the bond market, that 0:03:21.480 --> 0:03:24.200 bond deals could go even higher on the long end, 0:03:24.240 --> 0:03:27.160 and that actually Meghan Graper is correct, and the bond 0:03:27.200 --> 0:03:29.200 market is telling the FED they need to do more 0:03:29.280 --> 0:03:31.079 on the front end, and not that they have to 0:03:31.160 --> 0:03:32.119 let the long end do the work. 0:03:32.360 --> 0:03:33.000 I agree with you. 0:03:33.639 --> 0:03:35.520 Is the long end doing some of the Fed's work 0:03:35.560 --> 0:03:38.440 for them, Absolutely, but that's proving not to be enough. 0:03:39.200 --> 0:03:41.360 The Fed, I don't believe is done. You know, we 0:03:41.480 --> 0:03:44.480 said along either November or December. I think it's more 0:03:44.560 --> 0:03:47.000 likely December. But I still want to come to the point. 0:03:47.440 --> 0:03:49.640 More important than when the FED. If the FED raises 0:03:49.760 --> 0:03:52.480 rates again, is what about the impact from zero to 0:03:52.520 --> 0:03:54.760 five and a quarter In the last eighteen months, we 0:03:54.800 --> 0:03:56.880 have not seen the full impact of that lease. And 0:03:56.960 --> 0:03:58.040 I think that's still in front of us. 0:03:58.160 --> 0:03:59.920 Let's talk about the banks and build on the white 0:04:00.080 --> 0:04:03.160 Tom start this conversation. Many of these banks are sitting 0:04:03.160 --> 0:04:06.080 on some securities very long dated well when rates were 0:04:06.120 --> 0:04:09.560 very low. Now rates are higher, They're underwater, is what 0:04:09.720 --> 0:04:12.119 Bank of America and the CFO is saying about them. 0:04:12.520 --> 0:04:16.800 Expect zero losses from the how to maturity securities. I 0:04:16.839 --> 0:04:19.360 think we all understand that what gets them out of 0:04:19.400 --> 0:04:22.240 the penalty box regarding this story, because that stuff has 0:04:22.279 --> 0:04:24.600 been bullied by this story. 0:04:25.080 --> 0:04:28.160 All yeah, yeah, because they're big numbers and that it's legitimate. 0:04:28.240 --> 0:04:30.520 Some banks had to mark the market, and we know 0:04:30.560 --> 0:04:33.560 what happened back back in April. Look, these things will 0:04:33.680 --> 0:04:36.640 mature and they'll they'll be at a zero loss at 0:04:36.640 --> 0:04:39.479 that point in time. But it's so big and it's 0:04:39.480 --> 0:04:42.119 so pervasive. I don't know how you can hide behind 0:04:42.120 --> 0:04:42.640 that anymore. 0:04:42.800 --> 0:04:45.760 To your brilliant question, John, I'm sorry, you're one hundred 0:04:45.800 --> 0:04:49.039 percent correct. The idea of how the maturity is bs 0:04:49.040 --> 0:04:52.679 in any textbook. You go to Lehigh University a million 0:04:52.760 --> 0:04:56.280 years ago and young doll was going, that's bologne. Let's 0:04:56.279 --> 0:04:58.320 talk real blog here. I want to talk about your 0:04:58.360 --> 0:05:01.760 CPA background in the fans warton degree you've got, which 0:05:01.800 --> 0:05:06.000 is about accounting, accounting, accounting. The absolute shock of the 0:05:06.040 --> 0:05:10.560 Gloom Crew has been margin resiliency. That's an IMF term. 0:05:10.720 --> 0:05:14.840 Everybody's resilient. I was resilient over my Moroccan coffee. Are 0:05:14.880 --> 0:05:16.840 we resilient right now in our margins? 0:05:16.920 --> 0:05:17.640 I don't think so. 0:05:17.920 --> 0:05:19.280 You're going to see margins giveaway. 0:05:19.520 --> 0:05:22.440 I think margins will come under some pressure. We're early 0:05:22.520 --> 0:05:25.200 in the reporting season and they've held up reasonably well. 0:05:25.200 --> 0:05:28.360 But I don't see how companies can continue with these 0:05:28.360 --> 0:05:31.200 big price increases to match their cost increase. Look at 0:05:31.240 --> 0:05:33.040 the labor wage gains. 0:05:33.160 --> 0:05:35.200 Okay, so are you in cash? I mean this is 0:05:35.240 --> 0:05:37.560 the negative. This is the gloomy doll we're seeing this. 0:05:37.600 --> 0:05:42.080 So we have more defensive securities. I want securities stocks 0:05:42.480 --> 0:05:47.640 that have high earnings predictability, high earnings persistence, good cash flow, 0:05:47.720 --> 0:05:52.080 and reasonable valuations, and that means you're away from the 0:05:52.120 --> 0:05:53.360 economy to some degree. 0:05:53.440 --> 0:05:56.200 That's Apple, Microsoft, and Manchester. 0:05:55.920 --> 0:06:00.880 United Those it fit the bill. 0:06:02.200 --> 0:06:02.599 Definitely. 0:06:02.600 --> 0:06:06.400 I double up on Manchester. The HMOs fit the bill. 0:06:06.680 --> 0:06:10.880 Some software companies fit that bill. It's what are the 0:06:10.960 --> 0:06:14.840 companies that you're pretty sure six months from now will 0:06:14.880 --> 0:06:17.840 deliver the earnings that are expected. I think a lot 0:06:17.839 --> 0:06:21.360 of companies will miss on earnings as the economy slows, 0:06:21.520 --> 0:06:23.799 whether we get a recession or not. That's escaped almost 0:06:23.800 --> 0:06:26.680 everybody's vocabulary. I don't think it's out out of the 0:06:26.720 --> 0:06:27.640 picture for next year. 0:06:27.720 --> 0:06:31.719 Walmart present p E almost a thirty multiple. I don't 0:06:31.760 --> 0:06:32.080 get it. 0:06:32.560 --> 0:06:34.320 How many times this year have we heard about a 0:06:34.320 --> 0:06:38.160 weekly consumer all times? We said on this program the economist, 0:06:38.200 --> 0:06:41.279 the crime recession, do you see it actually materialize in 0:06:41.320 --> 0:06:43.320 this quarter? What are the sources of demand that's hound 0:06:43.360 --> 0:06:46.520 at this economy, but you can identify that are fading currently. 0:06:46.920 --> 0:06:49.520 So the amount of cash on the balance sheets, the 0:06:49.560 --> 0:06:52.120 excess cash from the pandemic that has definitely come down. 0:06:52.200 --> 0:06:54.960 We can debate whether it's almost over still half a 0:06:54.960 --> 0:06:57.240 trillion or whatever, but it's not three and a half 0:06:57.279 --> 0:07:02.240 trillion where it was two. Starting to see a fewer 0:07:02.279 --> 0:07:06.800 people work multiple jobs, and that's often a lead indicator 0:07:06.880 --> 0:07:10.800 into the job market. It's not a long list. At 0:07:10.840 --> 0:07:14.120 this point. You have to look at the lead indicators 0:07:14.640 --> 0:07:17.920 for the employment cycle, and they are getting to the 0:07:17.960 --> 0:07:20.920 point now where eighteen twenty four months after the Fed 0:07:20.960 --> 0:07:24.640 starts raising rates, after the yield curve begins to invert. 0:07:24.480 --> 0:07:26.120 We just we just have no patience. 0:07:26.520 --> 0:07:27.360 Somebody went back. 0:07:27.240 --> 0:07:30.200 And looked at these periods in the past between Fed 0:07:30.280 --> 0:07:33.320 raising rates, yield curve inverting, and the start of recession. 0:07:33.520 --> 0:07:36.640 The dialogue is always out of recession, it's never coming, 0:07:36.920 --> 0:07:38.640 and then all of a sudden, there it is. 0:07:39.080 --> 0:07:42.760 Jobless claims coincidental indicator saying it's not here. 0:07:42.600 --> 0:07:42.920 Isn't it? 0:07:42.960 --> 0:07:44.559 No, it's not here yet that's correct. 0:07:44.720 --> 0:07:46.800 Still in and around tondray Kine. 0:07:50.560 --> 0:07:54.400 Grig Dako joins us NOW chief economist E Y as 0:07:54.440 --> 0:07:58.600 he considers this across all the advantages of the EY system. 0:07:58.840 --> 0:08:01.840 The market was were you yes? 0:08:01.960 --> 0:08:04.440 I think the surprise was both in terms of the 0:08:04.480 --> 0:08:06.760 strength of the data in September, but also, as you 0:08:06.800 --> 0:08:09.400 mentioned the upward revision for the month of August, we 0:08:09.520 --> 0:08:12.720 are seeing that consumers spent more than we initially thought 0:08:12.760 --> 0:08:15.080 over the course of the summer. The key question is 0:08:15.120 --> 0:08:18.880 twofold One, do we see that momentum persist into the 0:08:18.920 --> 0:08:20.920 fourth quarter or do we see a little bit of 0:08:20.920 --> 0:08:23.040 a pullback after the strong summer? 0:08:23.360 --> 0:08:23.520 Two? 0:08:24.000 --> 0:08:27.080 Is it inflationary growth? To your question about whether the 0:08:27.080 --> 0:08:29.880 Fed will have to go further in terms of raising rates, 0:08:30.240 --> 0:08:33.479 so far we haven't seen the type of inflationary dynamics 0:08:33.760 --> 0:08:36.560 that would be aligned with this strong growth. I think 0:08:36.600 --> 0:08:39.000 that would allow the Fed to not necessarily have to 0:08:39.040 --> 0:08:39.640 tighten further. 0:08:39.760 --> 0:08:43.800 Are we in the thrall still of pandemic uncertainty? Do 0:08:43.880 --> 0:08:46.480 you have a belief to Q four? Can you model 0:08:46.520 --> 0:08:50.319 out Q one Q two of twenty twenty four, or 0:08:50.320 --> 0:08:52.320 are you just making it up because this is a 0:08:52.440 --> 0:08:55.400 regional macroeconomics. 0:08:54.800 --> 0:08:57.280 Well, I think it's very difficult, certainly to forecast in 0:08:57.320 --> 0:08:59.440 the current environment. We have a set of unique features 0:08:59.440 --> 0:09:01.280 when it comes to the state of the labor market, 0:09:01.320 --> 0:09:03.280 we have a set of unique features when it comes 0:09:03.320 --> 0:09:05.200 to the state of the housing market. When it comes 0:09:05.280 --> 0:09:08.640 to the resilience of consumers, even we've been surprised as 0:09:08.640 --> 0:09:11.360 to how resilient consumers are. But I would note a 0:09:11.360 --> 0:09:11.920 few things. 0:09:12.200 --> 0:09:13.400 First, we are. 0:09:13.320 --> 0:09:17.520 Seeing the drag from higher prices weighing on consumers' ability 0:09:17.600 --> 0:09:21.320 to spend as we move forward, especially for lower income families. 0:09:21.559 --> 0:09:24.440 We're seeing the weight of higher interest rates weighing on 0:09:24.480 --> 0:09:27.960 people's ability and desire to spend on credit. We're seeing 0:09:28.000 --> 0:09:30.960 tightening credit conditions, and we are seeing the effect of 0:09:31.000 --> 0:09:33.200 tighter financial conditions even today. 0:09:33.320 --> 0:09:34.120 Okay, this is what. 0:09:34.120 --> 0:09:37.480 People have been saying. FED officials included in anecdotal conversations 0:09:37.480 --> 0:09:40.199 that they've been having with their constituents. They're hearing about this. 0:09:40.600 --> 0:09:42.880 So then why does the data keep coming in strong 0:09:42.840 --> 0:09:44.680 because an expected read after read. 0:09:44.840 --> 0:09:47.439 Well, again, this is still the third quarter, right, we 0:09:47.559 --> 0:09:50.280 had a strong third quarter. We know the spending in 0:09:50.360 --> 0:09:53.160 terms of consumer activity was very strong in the third quarter. 0:09:53.440 --> 0:09:56.920 We also know we're not seeing a retrenchment that is 0:09:56.960 --> 0:09:59.480 one of the key elements of this economy. We're not 0:09:59.520 --> 0:10:02.520 seeing the business sector retrench, whether it's in terms of 0:10:02.520 --> 0:10:05.960 investment or hiring, that it's still supportive of income and 0:10:06.040 --> 0:10:08.920 in turn that has allowed consumer to spend. The key 0:10:08.960 --> 0:10:11.880 question is whether this type of momentum, very strong momentum 0:10:11.920 --> 0:10:14.959 in the third quarter, can really persist into the fourth 0:10:15.000 --> 0:10:16.400 and into the first of next year. 0:10:16.480 --> 0:10:19.040 You said something that was really important that it's unclear 0:10:19.080 --> 0:10:22.280 whether this type of spending is inflationary. What is going 0:10:22.360 --> 0:10:25.200 to be the tell on that, Because it seems like 0:10:25.320 --> 0:10:28.160 if people are willing to pay higher prices and companies 0:10:28.160 --> 0:10:30.600 are passing them along again to PEPSI or co cod, 0:10:30.720 --> 0:10:33.560 you've got sh inflation and all that. Well, why wouldn't 0:10:33.600 --> 0:10:36.679 this be inflationary? Why would inflation keep dropping? 0:10:37.120 --> 0:10:40.000 Well, we've continued to see slower momentum when it comes 0:10:40.000 --> 0:10:43.040 to CPI prices, when it comes to PPI prices, even 0:10:43.080 --> 0:10:46.080 the margins on the PPI front are pointing to less 0:10:46.120 --> 0:10:49.840 inflation on a sequential momentum basis. Even the jobs report 0:10:49.960 --> 0:10:52.640 last Friday that was very strong, it was non inflationary. 0:10:52.880 --> 0:10:55.600 We were seeing the help from the supply side help 0:10:55.640 --> 0:10:58.720 alleviate some of the wage pressures and bring down wage growth. 0:10:58.840 --> 0:11:02.439 So that's less inflationary then would be concerning for the FED. 0:11:02.720 --> 0:11:06.080 And we've seen actually inflation run ahead of the Fed's expectations. 0:11:06.120 --> 0:11:08.760 I wouldn't be surprised that we end up below the 0:11:08.800 --> 0:11:11.880 Fed's SEP projections in terms of inflation by year end. 0:11:11.960 --> 0:11:14.800 Greg daco E y with us will continue here a 0:11:14.880 --> 0:11:16.839 five point one five percent in the two years. The 0:11:16.880 --> 0:11:19.400 ten year yield really buttressed out right to recent highs 0:11:19.440 --> 0:11:22.480 four point eight zero percent. Thirty year bond a dash 0:11:22.559 --> 0:11:25.640 to five percent four point ninety four percent. Michael McKee 0:11:25.760 --> 0:11:27.079 further observation. 0:11:27.080 --> 0:11:30.559 Well, I think the auto sales is an interesting situation, 0:11:30.679 --> 0:11:32.560 and we don't know how much of that is parts 0:11:32.600 --> 0:11:35.440 and repairs. But given the fact that we had a 0:11:35.520 --> 0:11:39.280 strike and maybe that's got people to go buy cars 0:11:39.320 --> 0:11:42.240 while they thought they could. But at nine fifteen this 0:11:42.320 --> 0:11:46.000 morning Eastern, we get the industrial production numbers and we'll 0:11:46.040 --> 0:11:49.360 see about auto manufacturing, see if that is a sort 0:11:49.360 --> 0:11:51.800 of counterweight to the auto sales. If we're just selling 0:11:51.800 --> 0:11:53.560 what's on the lot and you're not going to have 0:11:53.600 --> 0:11:56.120 any more, then that is less of a problem for 0:11:56.160 --> 0:11:58.120 the FED. But it's an interesting dynamic. 0:11:58.200 --> 0:12:03.040 But for four years we've missed, simply missed guests, the 0:12:03.160 --> 0:12:07.480 resiliency of the consumer. What are the economists doing wrong? 0:12:09.800 --> 0:12:11.760 It's an interesting question because we always used to say 0:12:11.800 --> 0:12:14.200 before the pandemic, never stand between an American and a 0:12:14.240 --> 0:12:18.000 cash register, and that seems to be back in force. 0:12:18.960 --> 0:12:21.520 There was a shift in spending. Everybody went to goods 0:12:21.600 --> 0:12:24.320 during the pandemic, and then everybody did revenge travel and 0:12:24.360 --> 0:12:27.120 went to services. And now it seems to be broadening 0:12:27.120 --> 0:12:29.720 out so that people are just continuing to spend. But 0:12:29.800 --> 0:12:33.400 we thought that their money would run out and it hasn't. 0:12:33.920 --> 0:12:38.079 It may be the additional wage gains that people have gotten, 0:12:38.120 --> 0:12:42.000 because people tend to spend what they make, and now 0:12:42.040 --> 0:12:45.160 if we've spent down the pandemic bonuses, it may be 0:12:45.240 --> 0:12:47.200 that people got raises and they feel like they can 0:12:47.240 --> 0:12:47.840 spend more. 0:12:47.760 --> 0:12:50.199 Greg just final word here, does that mean that this 0:12:50.240 --> 0:12:52.880 world can live with five percent patchmark rates? And that 0:12:52.920 --> 0:12:55.679 we're looking at a new term structure that looks very 0:12:55.679 --> 0:12:57.240 different to what he did it three years ago. 0:12:57.400 --> 0:12:59.360 Well, we certainly have to adapt to a higher cost 0:12:59.360 --> 0:13:01.920 of capital. Think there's no doubt that we have to 0:13:02.280 --> 0:13:05.600 have both the business sector and the consumer sector adapt 0:13:05.600 --> 0:13:07.680 to this higher cost of capital. I would point to 0:13:07.760 --> 0:13:09.920 one thing that is very important in this higher cost 0:13:09.960 --> 0:13:13.120 of capital environment, how strong income is. If we start 0:13:13.120 --> 0:13:16.040 to see softening in income, which we have seen, that 0:13:16.120 --> 0:13:18.760 will weigh on people's ability to spend. But there's no 0:13:18.880 --> 0:13:21.240 doubt that we're not going back to the free money era. 0:13:21.679 --> 0:13:24.160 People still want to invest in this environment, but there's 0:13:24.200 --> 0:13:26.319 going to be more scrutiny as to how much investment 0:13:26.360 --> 0:13:28.440 goes into the economy and how much hiring goes in 0:13:28.640 --> 0:13:28.880 road To. 0:13:28.880 --> 0:13:32.120 Find a quick question which matters most the November meeting 0:13:32.200 --> 0:13:35.079 November one or do we dash to December? Which meeting 0:13:35.120 --> 0:13:36.720 is of greater value to Greg Bako. 0:13:37.120 --> 0:13:38.960 I think both meetings are going to be quite interesting 0:13:39.000 --> 0:13:41.080 because even if we don't get a rate hike at 0:13:41.080 --> 0:13:44.680 the upcoming November meeting, we'll get a discussion and more 0:13:44.720 --> 0:13:47.880 information coming out of Fetcher Powell as to the intentions 0:13:47.920 --> 0:13:50.400 of the FED going into the last meeting of the year. 0:13:50.559 --> 0:13:53.680 They will want to maintain that optionality of one more meeting, 0:13:53.840 --> 0:13:56.440 but I think they're increasingly taking comfort in the fact 0:13:56.480 --> 0:13:58.880 that the July rate hike may have been this last 0:13:59.000 --> 0:14:01.000 rate hike in the system tightening cycle. 0:14:01.440 --> 0:14:05.680 Interesting time we see this. The November meeting hasn't changed 0:14:05.679 --> 0:14:09.000 in terms of futures pricing nine point eight percent, but 0:14:09.040 --> 0:14:11.880 now we're up to thirty one percent for December exactly. 0:14:11.920 --> 0:14:13.760 I think maybe this is the moment where we launch 0:14:13.800 --> 0:14:16.280 out to I believe it's December thirteenth. Greg Daco, thank 0:14:16.280 --> 0:14:29.280 you so much. With e y Ernst and young true 0:14:29.320 --> 0:14:32.120 Ntta Rogen joins us owns the high ground on the 0:14:32.200 --> 0:14:36.040 major banks and particularly Fortress Solomon, or at least Igloo 0:14:36.040 --> 0:14:38.520 Solomon as it is. Let me just go to a 0:14:38.600 --> 0:14:41.200 general and open question right now, your thoughts. I'm looking 0:14:41.240 --> 0:14:43.560 at different stories here saying it was a Moldi quarter 0:14:43.640 --> 0:14:45.920 because of the right downs, but your thoughts. 0:14:45.600 --> 0:14:49.880 Free not necessarily because of the they're pulled back from 0:14:49.920 --> 0:14:53.280 consumer lending. It was a Mouldi quarter. This is again 0:14:53.320 --> 0:14:55.680 a transition quarter. We talked about the second quarter for 0:14:55.720 --> 0:14:58.640 Goldman Sachs being a kitchen sing quarter. They are doing 0:14:58.640 --> 0:15:01.440 this strategy pivot owned up to their mistake with the 0:15:01.440 --> 0:15:04.280 consumer banking foray and locked in a lot of the 0:15:04.320 --> 0:15:06.880 losses and the hits from backing out of that in 0:15:06.920 --> 0:15:09.440 the second quarter. Some of it is reflected in the 0:15:09.440 --> 0:15:11.520 third quarter as well, but the lot of the losses 0:15:11.560 --> 0:15:14.080 are also just straight tied up to the real estate 0:15:14.160 --> 0:15:17.280 market and also the fact that the investment banking market 0:15:17.400 --> 0:15:20.800 remains sluggish. That's what's driving profits down thirty three percent. 0:15:21.040 --> 0:15:23.680 Not necessarily some of the changes you're seeing there, they're 0:15:23.720 --> 0:15:27.240 significant from a strategy perspective, not necessarily a third quarter 0:15:27.280 --> 0:15:28.080 earnings perspective. 0:15:28.080 --> 0:15:28.760 For Goldman Sax. 0:15:28.840 --> 0:15:30.040 What is Agloo Solomon? 0:15:30.240 --> 0:15:36.120 It's a smaller okay, smaller icy Fortress asked the question. 0:15:37.640 --> 0:15:39.200 For that, It was melting. 0:15:39.040 --> 0:15:41.920 Forts is like big and we're doing this, and we're 0:15:41.960 --> 0:15:44.120 doing this is what Jane Fraser wants to do. These 0:15:44.160 --> 0:15:47.000 guys want to Can we just get back to what 0:15:47.160 --> 0:15:49.040 we used to do in a smaller format? 0:15:49.120 --> 0:15:51.560 Okay, just want to do it. That was wonderful. 0:15:53.800 --> 0:15:56.320 Fortress is also a lot more sturdy than an Igloo. 0:15:57.280 --> 0:16:00.880 Okay, Okay, you're both taking aren't you. Are you saying 0:16:00.920 --> 0:16:02.840 that things are sturdier at JP Morgan Right now, the 0:16:02.920 --> 0:16:07.800 guy I was just trying to explain, Okay, I'm making 0:16:07.840 --> 0:16:11.120 a career out of that. Okay, of the forces that 0:16:11.160 --> 0:16:13.720 have had this bank back and things getting better or worse. 0:16:15.120 --> 0:16:18.360 It's headed in a new direction, not necessarily better or worse, 0:16:18.400 --> 0:16:20.720 because they will have to execute it is a story 0:16:20.800 --> 0:16:21.440 that they have to tell. 0:16:21.760 --> 0:16:23.520 They have a coherent story to tell. 0:16:23.640 --> 0:16:23.760 Now. 0:16:23.920 --> 0:16:26.080 You could argue that there was some flip flopping over 0:16:26.080 --> 0:16:28.360 the last couple of years, but at least now it's clear. 0:16:28.600 --> 0:16:30.880 They say they have two important legs to the stool, 0:16:31.080 --> 0:16:33.600 the investment bank and the asset and wealth management unit. 0:16:33.880 --> 0:16:36.560 Now the key is to prove that they can deliver 0:16:36.680 --> 0:16:40.240 on both fronts to the expectations of investors and therefore 0:16:40.320 --> 0:16:42.560 drive the stock higher with higher multiples down the road. 0:16:42.640 --> 0:16:44.680 What can we learn from the fact the Goldman Sachs 0:16:44.800 --> 0:16:47.800 beat on equity trading revenue at a time we saw JP, 0:16:47.920 --> 0:16:49.240 Worman and City Group not. 0:16:49.880 --> 0:16:52.720 It's interesting look over the last few years the crown 0:16:52.840 --> 0:16:55.680 for equity trading champion on Wall Street has been moving 0:16:55.720 --> 0:16:58.960 around with Goldman Sacks, Moment, Stanley, JP Morgan. It was 0:16:59.120 --> 0:17:02.800 pre pandemic least for a few years. Unquestionably Morgan Stanley 0:17:03.160 --> 0:17:05.600 not so much post pandemic. That comes down to some 0:17:05.720 --> 0:17:07.840 credit you have to give to Goldman traders who have 0:17:07.960 --> 0:17:11.840 gained serious market share across equities, and Fick Bank of 0:17:11.880 --> 0:17:14.240 America had a big jump in their equity trading business, 0:17:14.480 --> 0:17:17.040 but that was off a lower base. Goldman's jump from 0:17:17.080 --> 0:17:18.960 two point six billion to two point nine billion a. 0:17:19.000 --> 0:17:20.160 Quarter, it's pretty significant. 0:17:20.160 --> 0:17:22.280 If you can hit three billion a quarter in equities, 0:17:22.400 --> 0:17:23.520 that's a pretty sturdy business. 0:17:23.640 --> 0:17:26.240 What's the difference between market share gains and writing a 0:17:26.320 --> 0:17:28.639 good market right A lot of people have raised questions 0:17:28.680 --> 0:17:31.040 about how robust capital markets are right now, given the 0:17:31.119 --> 0:17:33.520 fact that a lot of company are icing a lot 0:17:33.560 --> 0:17:36.600 of their transactions. How much is this just market share 0:17:36.680 --> 0:17:39.800 gain from European banks from smaller banks from each other, 0:17:40.119 --> 0:17:42.080 rather than really reflective of a good environment. 0:17:42.359 --> 0:17:44.399 Writing the gains is the factor of the overall wallet. 0:17:44.920 --> 0:17:47.679 An individual bank does not control that, But what they 0:17:47.760 --> 0:17:50.680 can control is the market share of the wallet that's available. 0:17:50.880 --> 0:17:54.000 And if you are gaining market share there, you're making progress. 0:17:54.320 --> 0:17:56.880 So even if the entire industry moves in a certain trend, 0:17:57.119 --> 0:17:59.639 if you're gaining within that, you will stand out at 0:17:59.720 --> 0:18:01.280 least eyes of investors straight now. 0:18:01.320 --> 0:18:03.320 Everyone's a bank canalyst. So some people listening to this 0:18:03.440 --> 0:18:06.080 and hearing phrases like house maturity, securities and all of 0:18:06.119 --> 0:18:08.760 this stuff regarded Bank for America, the stock's in a 0:18:08.800 --> 0:18:11.240 penalty box. It's down close to twenty percent. Yet today, 0:18:11.520 --> 0:18:14.159 can you explain what is coming on? Those longer de 0:18:14.160 --> 0:18:17.040 ety securities are underwater? We can all get that far. 0:18:17.560 --> 0:18:19.520 What's it stopping this bank from being able to do 0:18:19.960 --> 0:18:21.680 that is punishing this stock so much. 0:18:22.040 --> 0:18:24.200 The punishment in the stock simply goes to the fact 0:18:24.240 --> 0:18:26.600 that because they made that move, because they plowed their 0:18:26.640 --> 0:18:29.040 excess deposits a couple of years ago into some of 0:18:29.160 --> 0:18:32.160 these longer dated securities, that with the moves and interest 0:18:32.240 --> 0:18:34.800 rates that we've seen have been underwater, has meant that 0:18:34.920 --> 0:18:37.760 their securities portfolio is done one hundred and thirty one billion. 0:18:38.160 --> 0:18:41.320 That doesn't affect their earnings, but it does affect their 0:18:41.320 --> 0:18:45.000 earnings potential. Right if they had not had this money 0:18:45.080 --> 0:18:47.040 locked up there because it's all in health for maturity 0:18:47.119 --> 0:18:48.840 right now, if they didn't have that money locked up 0:18:48.880 --> 0:18:51.280 there and earning two point five percent, it could well 0:18:51.320 --> 0:18:53.520 have been earning four point five percent and five percent 0:18:53.600 --> 0:18:54.640 in a five percent world. 0:18:55.040 --> 0:18:58.120 Okay, this is brilliant, and I got like eight questions 0:18:58.160 --> 0:19:00.959 and we don't have time. What is the maturity right now? 0:19:01.080 --> 0:19:04.560 What is the average maturity of They're under a tenth 0:19:04.600 --> 0:19:05.719 of a trillion dollars? 0:19:05.880 --> 0:19:08.320 See, this is what I said about trying to deciber Tomkin. 0:19:08.440 --> 0:19:12.200