WEBVTT - Yields, Car Tech, Bank Earnings, and ETFs (Podcast) 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.560 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:21.560 at Bloomberg dot com slash podcast. All right, so I'm 0:00:21.560 --> 0:00:23.200 looking at my screen here, I look at my two 0:00:23.200 --> 0:00:29.440 tens on the treasuries. Uh five at seventy basis points 0:00:29.480 --> 0:00:32.879 of inversion on the twos and tens. And you know, 0:00:32.920 --> 0:00:35.440 I paid attention most days in business school when I 0:00:35.479 --> 0:00:38.000 was at Duke, and I remember learning that when the 0:00:38.080 --> 0:00:40.960 yield curve is inverted, that means a recession. And in fact, 0:00:41.200 --> 0:00:43.879 our next guest did some some pretty good work on 0:00:43.920 --> 0:00:46.680 that when he was a PhD guy at Universe Chicago. 0:00:46.840 --> 0:00:49.559 Professor Cam Harvey joins the He's a finance professor at 0:00:49.640 --> 0:00:53.320 Duke University, the Fucal school there. Uh he was my 0:00:53.360 --> 0:00:56.440 professor when I was there at Duke camp. Thanks so 0:00:56.520 --> 0:00:58.760 much for joining us here. I mean, you, more than 0:00:58.840 --> 0:01:03.160 anybody have written about and showed the merits of this 0:01:03.240 --> 0:01:07.400 inverted yield curve really signaling recessions? How about these days, 0:01:07.400 --> 0:01:10.160 because it's been inverted for a while. Here my economy 0:01:10.160 --> 0:01:12.679 seems pretty strong here on the East side of New York. 0:01:13.120 --> 0:01:16.319 What say you on that yield curve thing? Yeah, so 0:01:16.600 --> 0:01:19.760 it's interesting. So I guess, as you said, I'm the 0:01:19.760 --> 0:01:22.880 one that came up with the idea in my dissertation 0:01:24.600 --> 0:01:28.640 and at the time, UM, looking at data from night 0:01:29.120 --> 0:01:33.600 it was four out of four and predicting recessions and uh, 0:01:33.640 --> 0:01:37.120 it even got the double dip, which nobody got. And 0:01:37.160 --> 0:01:41.959 then out a sample it's had four inversions and followed 0:01:41.959 --> 0:01:46.720 by four recessions, including the global financial crisis. And now, um, 0:01:46.800 --> 0:01:49.800 the tenure MONTHUS three months, that's the one that I 0:01:49.880 --> 0:01:56.080 look at. Um, it's inverted, and I'm basically making the 0:01:56.080 --> 0:01:59.760 case that this is a situation where it's likely a 0:01:59.760 --> 0:02:03.360 fall signal, and there's a number of reasons behind that. Okay, 0:02:03.400 --> 0:02:06.560 So just to sound up, you're the one who found 0:02:06.600 --> 0:02:11.360 this indicator and you've proved it to be UM reliable 0:02:11.639 --> 0:02:14.760 in terms of predicting a recession. But now you're the 0:02:14.760 --> 0:02:17.600 one saying this indicator is not telling us that a 0:02:17.639 --> 0:02:22.200 recession is coming. So why well, the indicator is suggesting 0:02:22.200 --> 0:02:26.600 a recession. But the reason is fairly simple, uh, and 0:02:26.720 --> 0:02:31.320 that is that the economy is very complex, and to 0:02:31.480 --> 0:02:36.080 think that you've got this model that is going to 0:02:36.120 --> 0:02:40.240 be perfect forever is really naive. The model looks at 0:02:40.240 --> 0:02:44.120 a single variable, uh, the difference between long term meals 0:02:44.160 --> 0:02:47.519 and short term meals, and and to think that that 0:02:47.800 --> 0:02:52.400 single indicator is going to be perfect forever, Uh, that's 0:02:52.520 --> 0:02:56.919 just not very scientific. So we know the world is complex, 0:02:57.320 --> 0:03:03.240 and this particular situation we're in, I think is is 0:03:03.480 --> 0:03:08.480 far different than previous recessions. So we know that, um, 0:03:08.520 --> 0:03:11.760 this time is different every time, but the degree of 0:03:11.800 --> 0:03:15.600 difference is pretty stark. So what's what's what's different now, 0:03:15.720 --> 0:03:19.720 Kim in the economy that may make this less predicted 0:03:19.800 --> 0:03:25.280 this time. Yeah, So there are basically six things that 0:03:25.280 --> 0:03:29.080 that I look at. So number one, and there's been 0:03:29.200 --> 0:03:32.680 much discussion about this, is the excess demand for labor. 0:03:33.560 --> 0:03:37.480 So that means that there's more job openings than people unemployed, 0:03:37.640 --> 0:03:40.800 and the gap is large. And what that means is 0:03:40.920 --> 0:03:44.760 that even if the economy slows down even more, UM, 0:03:44.840 --> 0:03:47.960 we'll be able to absorb those that get laid off. 0:03:48.760 --> 0:03:51.840 And even though unemployment will likely go up, it's not 0:03:51.880 --> 0:03:54.000 going to go up by that much. And that's a 0:03:54.120 --> 0:04:00.880 key indicator for dating the business cycle. So we know that, uh, 0:04:00.920 --> 0:04:05.200 that unemployment is a lagging indicator for the business cycle. 0:04:05.280 --> 0:04:08.160 So you just can't say, well, unemployment is low, therefore 0:04:08.400 --> 0:04:12.680 it isn't a recession. It's always low before recession. And 0:04:12.720 --> 0:04:16.040 that's not my point. My point is the excess capacity, 0:04:16.200 --> 0:04:20.600 the ability to absorb people that are laid off, um 0:04:20.839 --> 0:04:25.760 is way different than past recessions. The second thing is 0:04:25.839 --> 0:04:28.680 the sort of layoffs that we're already seeing are like 0:04:28.800 --> 0:04:32.640 layoffs from for example, the tech sector, and if you 0:04:32.680 --> 0:04:37.839 get laid off with the technology job at Twitter or Facebook, uh, 0:04:38.160 --> 0:04:42.640 you can easily get replaced in the workforce, so you 0:04:42.680 --> 0:04:46.840 can get another placement, and the duration of your unemployment 0:04:47.040 --> 0:04:50.159 is very short. Uh. So I think that that is 0:04:50.200 --> 0:04:54.080 also an issue. Number three, Consumers are in a far 0:04:54.200 --> 0:04:58.120 better position today than let's say, before the global of 0:04:58.160 --> 0:05:01.359 financial crisis. So if you look, for example, in the 0:05:01.400 --> 0:05:06.560 housing sector, the amount of equity versus debt or mortgage 0:05:07.560 --> 0:05:11.520 is really high. So so again we can absorb a 0:05:11.680 --> 0:05:15.760 decrease in housing without causing the same sort of issues 0:05:16.160 --> 0:05:20.440 like in the global financial crisis. Number four is the 0:05:20.480 --> 0:05:24.520 financial sector is much stronger than it was, for example, 0:05:24.640 --> 0:05:28.400 before the Global Financial crisis, so the financial sector is 0:05:28.560 --> 0:05:34.240 unlikely to make things worse. UM. And number five has 0:05:34.279 --> 0:05:37.200 kind of an interesting one. My model, UH at the 0:05:37.240 --> 0:05:42.080 Anniversity of Chicago is about real yields, so not nominal yields. 0:05:42.640 --> 0:05:46.880 And we've got a situation today where the term structure 0:05:47.320 --> 0:05:52.279 of inflation expectations is very inverted, meaning the short term 0:05:52.320 --> 0:05:55.760 expectations are far higher than the long term and that's 0:05:55.800 --> 0:06:00.360 kind of contributing to UM the inversion of the Yeld curve. 0:06:01.040 --> 0:06:05.040 And number six is very subtle, but it's very important 0:06:06.000 --> 0:06:10.200 given that my model is talked about now and featured 0:06:10.279 --> 0:06:15.839 on Bloomberg Radio. Um, it affects people's behavior. So you 0:06:15.880 --> 0:06:18.160 would not have had me on the show in two 0:06:18.200 --> 0:06:21.960 thousand and six because it was a real niche sort 0:06:21.960 --> 0:06:25.880 of indicator, not that well known, and were talking about 0:06:25.880 --> 0:06:28.800 on Bloomberg television as well. Yeah, for a long time, 0:06:28.839 --> 0:06:32.200 it was every day for like three months, that's right, 0:06:32.279 --> 0:06:34.880 But that did not happen when the Yeel curve was 0:06:34.960 --> 0:06:39.279 inverted for like a year before the global financial crisis. 0:06:39.960 --> 0:06:45.280 And yeah, so think about how it changes behavior. So 0:06:45.640 --> 0:06:50.440 suppose you're like a CEO going before shareholders in the 0:06:50.520 --> 0:06:53.920 middle of the global financial crisis, and you basically say, well, 0:06:53.960 --> 0:06:58.000 I was blindsided. We had no idea this recession was coming, 0:06:58.320 --> 0:07:03.560 and and nor did my peers, competitors, everybody was blindsided. Uh. 0:07:03.680 --> 0:07:08.800 Now today that is pretty well impossible to do. So 0:07:09.200 --> 0:07:11.800 people know that the old curve indicators a out of eight. 0:07:12.920 --> 0:07:16.720 So uh, if we do go into a recession, it's 0:07:16.800 --> 0:07:19.200 really hard for CEO to make the case, well, I 0:07:19.280 --> 0:07:22.960 was totally surprised. We made this major investment thinking everything 0:07:23.040 --> 0:07:26.360 was going to be okay. No, you can't do that 0:07:26.840 --> 0:07:30.280 in front of a record like eight out of eight. 0:07:30.920 --> 0:07:36.480 So what happens. Uh, Businesses and consumers are more likely 0:07:36.560 --> 0:07:41.320 to engage and risk management when the Yelk curve is inverted, 0:07:41.440 --> 0:07:45.600 so they take actions before a recession actually happens. And 0:07:45.880 --> 0:07:50.080 we're seeing this like small layoffs, Um, you know here 0:07:50.120 --> 0:07:55.800 and there where companies are getting ready for a slow 0:07:55.880 --> 0:08:00.760 down or basically stuff. We don't see that this happening. 0:08:01.520 --> 0:08:07.679 Companies deciding not to make major investments, delaying until there's 0:08:07.720 --> 0:08:11.040 more clarity in terms of, uh, you know what's going 0:08:11.040 --> 0:08:14.400 to happen in terms of the business cycle. So all 0:08:14.400 --> 0:08:17.680 of this, just just giving that background, what do you 0:08:17.680 --> 0:08:20.720 think our Federal Reserve could do should do over the 0:08:20.800 --> 0:08:25.880 next couple of meetings here? Yeah, So, so given that 0:08:26.000 --> 0:08:28.760 this is happening, that the deal curve is actually impacting 0:08:28.800 --> 0:08:33.800 behavior people are engaging in risk management, it actually reduces 0:08:33.840 --> 0:08:38.080 the chance that the signal, the inverted real curve is 0:08:38.200 --> 0:08:44.920 actually accurate in forecasting a recession. So the major wild 0:08:44.920 --> 0:08:49.360 card here is the FED. And the FED was late 0:08:50.000 --> 0:08:55.679 to the game with all of this talk about transitory inflation, 0:08:56.320 --> 0:08:59.440 and it didn't make any sense to so many people, 0:08:59.480 --> 0:09:03.319 including me. So they're very late to the game. And 0:09:03.440 --> 0:09:06.599 the major wild card here is whether the FIT is 0:09:06.600 --> 0:09:09.480 going to be late again. And what I mean by 0:09:09.520 --> 0:09:13.840 that is that they don't see that inflations under control. 0:09:14.000 --> 0:09:18.480 They've slowed the economy and this continue, Uh, the rate hikes. 0:09:19.080 --> 0:09:22.720 You have no reason to continue the rate hikes right now. 0:09:23.000 --> 0:09:28.560 So think the last six months inflation has been essentially zero. 0:09:28.960 --> 0:09:33.720 It's been like point three over six months, So there's 0:09:33.760 --> 0:09:38.400 no we're talking about basis points. No. Um. Indeed, I 0:09:38.400 --> 0:09:42.640 thought the last hike was unnecessary. They need to back 0:09:42.679 --> 0:09:46.160 off the backup is now, Yeah, we understand that. Cam, 0:09:46.200 --> 0:09:49.280 thanks so much for joining. Cam Harvey, Professor Finance at 0:09:49.280 --> 0:09:52.880 the Fucal School of Business at Duke University. He taught me. 0:09:53.320 --> 0:09:55.240 I learned a thing or two. I tried to you know, 0:09:55.360 --> 0:09:57.760 it's some tough stuff. He had man lots of math 0:09:58.240 --> 0:09:59.839 and I was taught they woudn't givena be math in 0:09:59.880 --> 0:10:07.280 this course. Last week out in Vegas, they had what's 0:10:07.280 --> 0:10:10.360 probably the biggest convention they have every year out there. 0:10:10.480 --> 0:10:13.080 It's got to be close to it Consumer Electronics Show. 0:10:13.160 --> 0:10:16.840 Cees like a couple hundred thousand tech geeks from literally 0:10:16.880 --> 0:10:19.000 all over the world to send upon Vegas to see 0:10:19.000 --> 0:10:21.200 all the new technology. But what it's really evolved into 0:10:21.240 --> 0:10:23.920 over the last ten fifteen years has been an auto 0:10:24.000 --> 0:10:28.440 show with some gadgets around it. UM and the auto 0:10:28.840 --> 0:10:31.520 manufacturers are really taken over because really the auto companies 0:10:31.640 --> 0:10:35.720 have become technology companies. UM. Kevin Tynan our auto analyst. 0:10:35.960 --> 0:10:37.880 He was out there with Michael Dean New Covers Autos 0:10:37.920 --> 0:10:41.160 as well. From London. There are Kevin Tynan's our senior 0:10:41.160 --> 0:10:44.079 automotive analyst and Bloomberg Intelligence. He's calling in from our 0:10:44.200 --> 0:10:47.640 beautiful Princeton campus. It's a campus down there, Matt, It's 0:10:47.679 --> 0:10:51.000 not just a building. Uh. Kevin talked to us about Vegas, 0:10:51.480 --> 0:10:54.960 the auto companies, c E S. What's your big takeaway 0:10:54.960 --> 0:10:58.280 from what Detroit is doing? Uh in the desert of 0:10:58.400 --> 0:11:03.640 Las Vegas. Yeah, it was wasn't a huge domestic manufacturer 0:11:03.760 --> 0:11:07.280 presence there, unless I would say the two biggest were Mercedes, 0:11:07.320 --> 0:11:11.640 Benz and UM the Stilantis brands, which you could argue 0:11:11.679 --> 0:11:15.600 are still still Dodge, Chrysler, UM, you know, but they 0:11:15.640 --> 0:11:19.320 they they did show a lot of international stuff, the 0:11:19.360 --> 0:11:25.120 new RAM pick up. So uh it was connected, autonomous 0:11:25.160 --> 0:11:30.040 and electric focused. But those are really the two biggest 0:11:30.880 --> 0:11:36.120 presentations or displayed that you saw there. UM similar to 0:11:36.200 --> 0:11:39.000 Detroit back in September. You know, there was about five 0:11:39.040 --> 0:11:43.000 automakers total there, and I think the markets really changed 0:11:43.080 --> 0:11:46.240 a little bit. And uh, you know that presence is 0:11:46.280 --> 0:11:49.840 down significantly. Have you driven the t RX speaking of Ram, 0:11:51.040 --> 0:11:55.640 I have, yeah, but back a while ago. Production that 0:11:55.800 --> 0:11:59.240 is thoroughly American truck. You're a truck guy, I'm a 0:11:59.240 --> 0:12:01.840 car guy. I look even if you're not a truck guy, 0:12:02.000 --> 0:12:09.440 it has horse power. Yeah. Um, Now electric vehicles will 0:12:09.480 --> 0:12:12.400 have that much and more. Really, frankly, yes, I think 0:12:12.440 --> 0:12:16.440 the I don't know about the So you still the Ford, 0:12:16.600 --> 0:12:19.760 you still measure it as horsepower, but I know that 0:12:19.800 --> 0:12:24.000 the Chevy Silverado EV has almost seven horse power and 0:12:24.080 --> 0:12:26.240 almost as much Torcas anyway, doesn't it doesn't matter. It's 0:12:26.240 --> 0:12:29.240 neither here nor there. The thing is to me today, 0:12:29.280 --> 0:12:34.480 the story Kevin Tesla cutting prices is like the first 0:12:34.720 --> 0:12:39.240 sign that the damn is breaking. Can all of these automakers, 0:12:39.240 --> 0:12:42.000 because they're all falling in sympathy with Tesla, can they 0:12:42.080 --> 0:12:45.800 hold or will they all have to start cutting prices. 0:12:46.720 --> 0:12:51.480 I don't think any of the legacy automakers are really 0:12:51.520 --> 0:12:54.760 concerned about what Tesla is doing with their pricing. I 0:12:54.800 --> 0:12:59.360 think break even UM in the key regions, certainly in 0:12:59.400 --> 0:13:02.760 North America is considerably lower. And when I say break even, 0:13:02.800 --> 0:13:06.600 I mean in terms of a total market value you know, uh, 0:13:06.880 --> 0:13:10.040 market share number. You know that that could be as 0:13:10.080 --> 0:13:15.040 low as twelve million units. Now, um, so look at 0:13:15.160 --> 0:13:18.120 the when this market was at its peak, When the 0:13:18.160 --> 0:13:21.079 US was at its peak in twenty sixteen, it was 0:13:21.160 --> 0:13:25.000 seventeen and a half million units. Uh, we're talking about 0:13:25.000 --> 0:13:30.920 maybe fourteen million for twenty three marks the difference. Right, 0:13:30.920 --> 0:13:35.320 in twenty seven, sixteen, average transaction price was thirty five 0:13:35.360 --> 0:13:40.280 thousand dollars. In December, average transaction price was forty eight five. Right, 0:13:40.320 --> 0:13:44.280 We're heading to a fifty thousand dollar uh transaction price 0:13:44.400 --> 0:13:47.320 market here. So when you look at that revenue pool, 0:13:47.400 --> 0:13:51.800 it's actually eighty two a hundred billion dollars larger now 0:13:51.920 --> 0:13:54.640 than what it was at its volume peak. So I 0:13:54.640 --> 0:13:58.080 think everybody focuses on, oh my gosh, the market smaller 0:13:58.120 --> 0:14:01.200 by three and a half million units. Here comes prices 0:14:01.240 --> 0:14:03.559 falling through the floor. And I don't think that's the case, 0:14:04.000 --> 0:14:08.200 because the revenue pool is actually bigger the better mix. 0:14:08.320 --> 0:14:13.120 But other prices following. Is Tesla cutting prices because they 0:14:13.120 --> 0:14:17.280 were simply wildly overpriced or are they cutting prices because 0:14:17.480 --> 0:14:21.520 they have a specific demand problem that's not industree wide. Well, 0:14:21.560 --> 0:14:25.840 look what they've done with capacity additions, right, they're opening factories. 0:14:25.920 --> 0:14:29.840 You know, essentially, if you rewind, you take your free 0:14:29.880 --> 0:14:34.000 capital that you got for being a trillion dollar automaker 0:14:34.040 --> 0:14:37.440 and you start opening factories or building factories all over 0:14:37.480 --> 0:14:39.960 the world, and I would argue, you don't really have 0:14:40.040 --> 0:14:44.000 the demand for that kind of capacity at this point so, um, 0:14:44.160 --> 0:14:46.920 where they would argue they were supply constraint for all 0:14:46.960 --> 0:14:50.320 this time. It looks like that is not the case anymore. 0:14:50.600 --> 0:14:52.960 Where other automakers have gone the other way, right, they've 0:14:53.000 --> 0:14:58.360 they've either converted production capacity from internal combustion to electrification 0:14:58.760 --> 0:15:02.920 or they've taken those costs out completely. Kevin, just you know, 0:15:03.120 --> 0:15:05.480 I don't know much about this business, But do I. 0:15:05.480 --> 0:15:08.600 If I'm GM and I've got a internal combustion engine 0:15:09.040 --> 0:15:13.360 factories plants somewhere, can I convert that to electric? And 0:15:13.400 --> 0:15:15.400 if so, how long does it take and what's the cost? 0:15:15.440 --> 0:15:17.960 And are they in fact doing that? Yeah? Well, Ham 0:15:18.080 --> 0:15:22.360 Trammic in Michigan is you know, was uh you know, 0:15:22.400 --> 0:15:27.440 a traditional internal combustion plant that'll supposedly be all electric. Um, yeah, 0:15:27.520 --> 0:15:31.520 so certainly possible. Look to Tesla's Freemont plant was a 0:15:31.560 --> 0:15:36.240 Toyota and General Motors joint venture, right, uh, New United Manufacturing, 0:15:36.800 --> 0:15:39.760 which Tesla probably got for less than you paid for 0:15:39.800 --> 0:15:43.520 your house and uh, you know, and becomes tense and 0:15:44.160 --> 0:15:47.040 evs rolling around all over the place. Definitely less than 0:15:47.080 --> 0:15:49.240 Paul paid for his probably a little more than I 0:15:49.280 --> 0:15:52.440 paid for my house. Hey, is there any chance that 0:15:53.200 --> 0:15:56.320 Porsche is gonna cut prices on the leven because I 0:15:56.320 --> 0:16:00.880 would like that. I think absolutely not. I think everybody 0:16:01.000 --> 0:16:03.440 you know, I was just looking at the December numbers, 0:16:03.480 --> 0:16:06.800 and you know, in the US, at least average transaction 0:16:06.840 --> 0:16:11.440 price for Mercedes Benzes up in the seventies accurate is 0:16:11.720 --> 0:16:15.600 fifty five thousand dollars, which was where Mercedes and BMW 0:16:15.800 --> 0:16:21.720 were not that long ago, you know, maybe one, yeah, 0:16:21.720 --> 0:16:26.960 exactly right. So any of that stuff that was affordable, 0:16:27.040 --> 0:16:30.400 low margin or unprofitable is just dead. You know. So 0:16:30.560 --> 0:16:32.760 if there's a finite amount of chips, where are you 0:16:32.800 --> 0:16:35.240 going to put them in your highest trim levels or 0:16:35.280 --> 0:16:38.600 your most profitable vehicles. Is there still a finite number 0:16:38.640 --> 0:16:41.560 of chips out there? Haven't We saw the chip thing? Yeah? 0:16:41.600 --> 0:16:43.840 I never thought it was a thing, but I think 0:16:43.920 --> 0:16:46.440 I always thought it was an excuse to say, like, hey, 0:16:46.440 --> 0:16:49.840 we're enriching our mix to our most profitable stuff if 0:16:49.840 --> 0:16:53.560 we could only get more of those darn chips. We know, Okay, 0:16:53.600 --> 0:16:57.760 but there's still there is still a finite amount of chips. 0:16:57.760 --> 0:17:01.680 It's the car chips are deal in short supply. PC 0:17:01.880 --> 0:17:06.360 chips were like puking them up. Um so, but Are 0:17:06.400 --> 0:17:09.160 there any carmakers that you think are at risk, who 0:17:09.640 --> 0:17:14.760 you know have raised prices too far, too fast other 0:17:14.840 --> 0:17:18.119 than the e V guys. No, No, I don't. It's Rivan, 0:17:18.200 --> 0:17:21.280 you know. I I've used the configurator and occasionally put 0:17:21.280 --> 0:17:24.400 together a nice R one. S love the look, would 0:17:24.400 --> 0:17:28.200 love to drive one. They're pretty pricey? Are they overpriced? 0:17:28.400 --> 0:17:32.520 For the lightning that Paul was in? Awesome? Awesome truck, 0:17:32.560 --> 0:17:36.040 but very expensive. You know. Um GM's hummer is like 0:17:36.080 --> 0:17:37.440 a hundred I don't know how much it is. It's 0:17:37.440 --> 0:17:40.639 like Kevin Kevin, just to reiterate, I did drive a 0:17:40.680 --> 0:17:44.160 pickup truck. There you go. Are any of those prices 0:17:44.320 --> 0:17:47.320 gonna come down? Well? Look, here's the question is which 0:17:47.920 --> 0:17:50.320 you know, what's your supply demand balance? Right? So it's 0:17:50.400 --> 0:17:53.280 in in in a vacuum. Prices are what prices are, 0:17:53.359 --> 0:17:56.040 but the the you're supply demand balance is what's going 0:17:56.080 --> 0:17:58.800 to determine that. And my argument is if you're a 0:17:59.000 --> 0:18:02.199 pure play e V builder right now, you might have 0:18:02.240 --> 0:18:05.760 a problem with that balance. If you're anybody else internal combustion, 0:18:05.800 --> 0:18:07.800 you don't have a problem with that balance. All right, 0:18:07.880 --> 0:18:09.560 All right, good stuff. I mean we can talk to 0:18:09.600 --> 0:18:12.240 Kevin all Day on this good point car stuff. Kevin Tynan, 0:18:12.320 --> 0:18:17.240 senior Automotive analyst for Bloomberg Intelligence. Uh he and uh 0:18:17.280 --> 0:18:19.639 Michael Dean in London. They are just all over the 0:18:19.680 --> 0:18:23.280 global auto space. They were out in Vegas, uh last 0:18:23.280 --> 0:18:25.760 week for the CS conference again, a lot of the 0:18:25.800 --> 0:18:28.600 auto companies out there showing off the technology platforms that 0:18:28.600 --> 0:18:34.120 they have that also sit on four wheels, so they're autos. 0:18:34.760 --> 0:18:37.880 It is banks day, so that means it is Alison 0:18:37.960 --> 0:18:41.600 Williams day. She covers all the banks for Bloomberg Intelligence. 0:18:42.080 --> 0:18:44.800 So Allison. The stocks had traded off on the news 0:18:44.880 --> 0:18:47.639 here kind of turning a little bit positive here. I 0:18:47.680 --> 0:18:49.840 don't know. I kind of was looking through some of 0:18:49.880 --> 0:18:52.080 the some of the notes and some of the some 0:18:52.160 --> 0:18:54.959 of your research and some of the reporting. I mean, 0:18:55.600 --> 0:18:59.080 the businesses cranking. Yes, they're being a little cautious going forward, 0:18:59.119 --> 0:19:01.680 but as Matt was just noting, they're pulling in huge 0:19:01.720 --> 0:19:04.919 amounts of net interest income. The income wasn't great. I 0:19:04.920 --> 0:19:07.440 know it's all relative to expectations, but the absolute number 0:19:07.440 --> 0:19:11.560 seems staggering. The numbers are good, and I think um 0:19:11.600 --> 0:19:17.000 to your point, it is the net interest income expectations um. 0:19:17.000 --> 0:19:20.239 That has investors a little bit disappointed, and you know, 0:19:20.320 --> 0:19:23.920 to some extent, management could be being conservative. Jamie Diamond said, 0:19:23.960 --> 0:19:27.359 they're not being conservative, but there's a lot of questions 0:19:27.440 --> 0:19:30.320 out there, um, and that's why, you know, the cause 0:19:30.320 --> 0:19:34.320 are being dominated by questions around what are your assumptions 0:19:34.320 --> 0:19:37.920 for deposit pricings, what are your assumptions for the economy, etcetera. 0:19:38.400 --> 0:19:41.280 Because you know, the good news that we had this 0:19:41.359 --> 0:19:46.120 year it was several fed hikes. Um. You know, now 0:19:46.160 --> 0:19:49.919 we're starting to see banks getting pressure to raise what 0:19:50.000 --> 0:19:53.000 they're paying depositors and and that's the squeeze what we're 0:19:53.000 --> 0:19:57.480 going to be getting in and it's tough to estimate. 0:19:57.560 --> 0:19:59.960 So I think the banks are trying to be conservative, 0:20:00.000 --> 0:20:01.960 are trying to get one quarter of guidance and getting 0:20:02.000 --> 0:20:04.800 boxed into a full year out. You ever play you 0:20:05.440 --> 0:20:08.359 or spades, because it seems to me like Jamie Diamond 0:20:08.400 --> 0:20:11.159 is sandbagging all the time. That guy is sandbagging. You know, 0:20:11.280 --> 0:20:14.120 there's a hurricane common, we've got to batten down the hatches. 0:20:14.400 --> 0:20:17.240 This is gonna be a horrible recession. Under promise and 0:20:17.280 --> 0:20:20.280 over delivered, right, that's more than under promise. That's like 0:20:21.080 --> 0:20:24.199 he's always setting us up for a lower bar. Is 0:20:24.240 --> 0:20:27.119 that is he doing that now? Because hasn't he walked 0:20:27.160 --> 0:20:29.919 back the hurricane comments. Well, I think I think it 0:20:30.160 --> 0:20:33.560 is um. You know, I think it's prudent for banks, right, 0:20:33.600 --> 0:20:35.640 you want them to be prudent and conservative. You don't 0:20:35.640 --> 0:20:39.720 want them to giving a pine sky estimates. I mean 0:20:39.760 --> 0:20:42.520 that was a little interesting last year, how quickly he 0:20:42.880 --> 0:20:46.880 changed his you know, quote weather forecast. I think that, 0:20:47.440 --> 0:20:49.919 you know, I think the point he was trying to 0:20:50.080 --> 0:20:52.840 make um even though we all were all focused on 0:20:52.880 --> 0:20:54.840 the weather forecast, but you know, he was making the 0:20:54.840 --> 0:20:57.600 point that look, we had we're fine, Like whatever happens, 0:20:57.800 --> 0:21:00.639 we're fine. And I think that's you know, if you 0:21:00.680 --> 0:21:04.080 look at the pretexts, pre provision profits, so what they're 0:21:04.119 --> 0:21:08.400 earning outside of those credit costs, Uh, they're well covered. 0:21:08.520 --> 0:21:12.840 And in fact, this quarter returned on tangible equity. That's 0:21:12.880 --> 0:21:16.480 that's pretty remarkable in a tough environment. They beat their 0:21:16.640 --> 0:21:21.400 return on equity target um this year. They could probably 0:21:21.440 --> 0:21:24.560 beat that next year. And and to me, that is 0:21:24.600 --> 0:21:29.639 really the area of focus versus um you know, versus 0:21:29.640 --> 0:21:33.840 cyclical pressures. But much has been said Alison about all 0:21:33.880 --> 0:21:36.800 of the bad leverage loan debt that these banks have. 0:21:37.000 --> 0:21:40.320 Paul and I talked about it all year, So if 0:21:40.359 --> 0:21:44.280 anybody was blindsided, they weren't watching Bloomberg TV or listening 0:21:44.320 --> 0:21:48.720 to Bloomberg Radio. Um, do we see that borne out 0:21:48.760 --> 0:21:52.159 in these earnings? Has anyone come out and said, man, 0:21:52.200 --> 0:21:56.240 we got crushed by all this horrible Tesla debt? Um 0:21:56.400 --> 0:21:59.639 or have they edged? Have they dealt with it? They have? 0:22:00.080 --> 0:22:02.879 I think they have dealt with it. Um. You know, 0:22:03.480 --> 0:22:07.320 there's there's likely some hit somewhere that we're not we're 0:22:07.359 --> 0:22:12.080 not seeing. Um. Just you know, banks have to report 0:22:12.119 --> 0:22:15.800 things depending on the degree of importance for their earnings, right, 0:22:15.840 --> 0:22:18.680 and so we did see them call out some things 0:22:18.680 --> 0:22:23.840 in the second quarter, in the third quarter, so you know, 0:22:24.119 --> 0:22:27.600 mostly radio silent um. This quarter, we're not hearing much 0:22:27.600 --> 0:22:30.679 of anything. Keep in mind that the credit markets in 0:22:30.720 --> 0:22:34.160 general were very good last quarters, so there were opportunities 0:22:34.160 --> 0:22:37.000 to hedge, there were opportunities to to do some things, 0:22:37.000 --> 0:22:40.040 and maybe that's how they managed down some of the risks. 0:22:40.080 --> 0:22:44.480 We did see jeffreyes um in the beginning of this week, 0:22:44.520 --> 0:22:47.480 which seems a long time ago now. Um, they did 0:22:47.520 --> 0:22:50.600 report a sort of a thirty eight million dollar you 0:22:50.640 --> 0:22:53.440 know hit in their quarter ending November, so a small hit, 0:22:54.119 --> 0:22:58.040 but in general, the business is so much smaller for 0:22:58.119 --> 0:23:00.960 the banks than it was at the time of the 0:23:01.000 --> 0:23:05.520 financial crisis. It's probably about of that size, and bags 0:23:05.520 --> 0:23:08.720 have been aggressively managing it down all year. Sorry, Twitter 0:23:08.760 --> 0:23:12.160 dead is what I meant. I mean, yeah, of course 0:23:13.080 --> 0:23:16.000 billion dollars of bad Twitter loans can write those down, 0:23:16.040 --> 0:23:19.000 and it seems like that could be a story, but 0:23:19.080 --> 0:23:20.800 we haven't seen it yet. It hasn't been all right, 0:23:20.840 --> 0:23:23.760 JP Morgan Chase chief executive officer Jamie Diamond called the 0:23:23.760 --> 0:23:28.600 firm's botched acquisition of college financial planning website Frank a 0:23:28.840 --> 0:23:31.119 quote huge mistake, a vow to share takeaways at a 0:23:31.160 --> 0:23:32.760 later date. I didn't know what that meant. I went 0:23:32.800 --> 0:23:36.439 back to read Matt Levine's Money Stuff column, which is 0:23:36.480 --> 0:23:38.840 a must read every day set and alert for that 0:23:39.160 --> 0:23:42.040 as I do, and he was basically just just fraud here. 0:23:42.040 --> 0:23:45.440 But the question I have is, you know, basically buying 0:23:45.480 --> 0:23:48.040 this company Frank was to get access to, you know, 0:23:48.240 --> 0:23:53.200 basically lists of you know, teenagers, college age kids. Is 0:23:53.240 --> 0:23:57.320 that a big issue for banks to attract some new customers? Here. 0:23:57.400 --> 0:24:00.000 I mean, I can't think how they do it. I mean, 0:24:00.200 --> 0:24:03.679 you try to get these teenagers and young adults. I 0:24:03.720 --> 0:24:07.040 think the banks are always trying to you know, get 0:24:07.200 --> 0:24:09.560 consumers as soon as they can in their in their 0:24:09.600 --> 0:24:12.479 life cycle. Uh. Some of the way that they do 0:24:12.520 --> 0:24:17.040 that sometimes is in the credit card business. UM. Definitely 0:24:17.119 --> 0:24:21.159 with the rise of fintech and digital offerings. UM, these 0:24:21.200 --> 0:24:23.040 banks that have run around a long time want to 0:24:23.080 --> 0:24:26.199 make sure that they are on top of you know, 0:24:26.240 --> 0:24:29.000 anything that knew that it's coming out there. They're the 0:24:29.000 --> 0:24:33.240 incumbents and they want to stay that way. UM. Disruption 0:24:33.320 --> 0:24:36.360 tends not to come from the incumbents. So I think 0:24:36.359 --> 0:24:40.120 that they're just you know, they're they're careful and they're watching. 0:24:40.800 --> 0:24:44.840 Jamie Diamond and has said that they want to do acquisitions, 0:24:44.880 --> 0:24:46.960 but they've done very few. They've done a lot of 0:24:47.000 --> 0:24:50.680 these small little acquisitions. UM. This one working out is 0:24:50.680 --> 0:24:55.719 is not giving them very good press. But but you know, 0:24:56.080 --> 0:24:58.680 we think that they still they still have an appetite 0:24:58.720 --> 0:25:02.720 for next year. Just all right. So for retail banking, 0:25:03.000 --> 0:25:05.400 here in our Bloomberg h Q headquarters of fifty nine, 0:25:05.440 --> 0:25:08.040