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Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Lisa Abram Woids,

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Speaker 1: along with Tom Keene and Jonathan Ferrell, join us each

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Speaker 1: day for insight from the best in economics, geopolitics, finance

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Speaker 1: and investment. Subscribe to Bloomberg Surveillance undermand on Apple, Spotify

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Speaker 1: and anywhere you get your podcasts, and always on Bloomberg

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Speaker 1: dot Com, the Bloomberg Terminal, and the Bloomberg Business app. Cities.

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Speaker 1: Andrew Hollandhurst expects more hikes this year, says the following.

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Speaker 1: In a time of incredibly anivated uncertainty. We once against

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Speaker 1: see markets as underpricing the level of policy rates this

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Speaker 1: year and have maintained our base case for policy rates.

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Speaker 1: Here's the number way for this, five fifty to five

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Speaker 1: seventy five, despite an undeniably dovish March f WEMC meeting,

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Speaker 1: even with a twenty five basis point hike. Andrew Hollandhurst,

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Speaker 1: the man behind the note a City, joins us here

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Speaker 1: in New York Morning, Andrew, Good morning, Okay, makes sense

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Speaker 1: to that five seventy five on FED funds In the

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Speaker 1: face of this, I think it's not hard to make

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Speaker 1: sense of if you follow the inflation data. The big

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Speaker 1: question is are we going to have a FED that's

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Speaker 1: focused on financial stability issues or price stability issues. I

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Speaker 1: think that's what we were talking about in the node.

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Speaker 1: In terms of the incredible uncertainty is it looks quite

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Speaker 1: uncertain relative to whether we're going to get this focus

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Speaker 1: on financial stability, which would be more dubish, or this

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Speaker 1: focus on price stability, which would be more harkish. The

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Speaker 1: last few days it looks like things are stabilizing a bit.

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Speaker 1: We're going to get some inflation data later this week,

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Speaker 1: maybe we start to move the narrative a little bit

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Speaker 1: back towards price stability. Let's talk about duration mismatches and

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Speaker 1: not in the bond market and not at banks, just

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Speaker 1: in terms of data and when we're going to find

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Speaker 1: things out. We'll get inflation data on April twelfth. I

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Speaker 1: just wonder how long it's going to take to find

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Speaker 1: out the financial stability issues we're on the calendar and

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Speaker 1: the mismatch this fed's got to grapple with because the

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Speaker 1: timeline is going to be all over the place, and

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Speaker 1: if they choose financial instability, they might have to wait

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Speaker 1: and wait and wait and wait. And you think it

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Speaker 1: might have to wait until twenty twenty four before they

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Speaker 1: see the slowdown bike. It could really take some time

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Speaker 1: before you see the slowdown coming in and affecting growth

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Speaker 1: data and especially inflation data. If you think about the

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Speaker 1: inflation data over the next three months, the next six months,

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Speaker 1: it's probably going to come in essentially where it was

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Speaker 1: going to come in before we had the issues in

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Speaker 1: the banking sector, So they could really be waiting to

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Speaker 1: see how this is going to trickle through and flow

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Speaker 1: through the economy. If you go back to where we

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Speaker 1: were just a couple of months ago, remember we'd had

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Speaker 1: some months of softer core inflation prints, the FED was

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Speaker 1: sounding a bit more dovish. Well, then you basically had

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Speaker 1: one month of data, you had a strong January, and

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Speaker 1: you had some revisions to the prior inflation data, and

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Speaker 1: all of a sudden, you had a more hawkish FED.

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Speaker 1: So we're trying to keep that in mind when we

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Speaker 1: think about the FED here that the volatility that we

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Speaker 1: saw in two year yields over the last couple of weeks,

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Speaker 1: it makes some sense if you think that they were

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Speaker 1: really moving between these two extremes where could be financial

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Speaker 1: stability that would be more dovish or it could be

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Speaker 1: price stability, and I think that really does mean that

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Speaker 1: policy rates still need to get above five and a

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Speaker 1: half percent. I love getting notes over the past two weeks.

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Speaker 1: I've loved it even more because I feel this exasperation

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Speaker 1: as people basically say rate cuts, everything is over, and

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Speaker 1: you're just like, stop it, guys, please stop it. Things,

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Speaker 1: how are still hot? We still have an inflation problem.

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Speaker 1: What kind of feedback do you get every time we

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Speaker 1: point of these out? Yeah, so it's interesting. I think

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Speaker 1: we actually get a lot of resonance on this idea

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Speaker 1: that inflation is still strong and underlying inflation is still strong.

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Speaker 1: And where there's more of a question from clients is

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Speaker 1: does the FED have the ability to respond to that

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Speaker 1: strong inflation and do they have the willingness to do it,

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Speaker 1: which which is a really important question for the FED,

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Speaker 1: and I think a question that the FED should be

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Speaker 1: aware people are asking, because one of the key things

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Speaker 1: you want to do as a central bank is to

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Speaker 1: provide that confidence that you have resolved to fight against

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Speaker 1: higher inflation. I think the market really got there a

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Speaker 1: month ago or so we had two yar yields above

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Speaker 1: five percent. Now there are new questions about whether the

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Speaker 1: Fed is going to essentially have to give a little

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Speaker 1: bit on the price stability mandate to focus on the

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Speaker 1: financial stability mandate. That could be problematic if we start

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Speaker 1: to view central banks is unwilling to move against inflation.

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Speaker 1: How high could ten year yields go if the Fed

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Speaker 1: does pause despite hotter than expected CPI, PC all of

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Speaker 1: the data indicators that we had been watching before the

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Speaker 1: financial stability questions. Yeah, it's really interesting. We've been thinking

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Speaker 1: about interest rates rising because policy rates are rising, but

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Speaker 1: there's this other scenario where policy rates could actually stay

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Speaker 1: lower and you could start to get longer term rates rising.

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Speaker 1: I think FED officials are feeling pretty confident about that

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Speaker 1: right now because if you look at longer term expectations

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Speaker 1: of inflation in the market five year forward, five year

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Speaker 1: inflation break events, well those have stayed relatively stable, relatively

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Speaker 1: consistent with mandate consistent policy levels. But I think that's

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Speaker 1: what they'll be watching. If that starts gliding up. If

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Speaker 1: you start saying higher tenure yields because the Fed is

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Speaker 1: being dovish, that would be a real concern for Fed officials.

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Speaker 1: We've said a few times they're in the risk management

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Speaker 1: business might say, they may decide are they going to

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Speaker 1: have enough information to make the code to hike by

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Speaker 1: the time I get to my third I think it's

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Speaker 1: going to be a difficult meeting. I think they will

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Speaker 1: have enough information to continue hiking at that meeting. The

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Speaker 1: question is what guidance are they're giving beyond that. And

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Speaker 1: we saw what happened with the dots at the last

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Speaker 1: meeting a week ago, those dots that indicate where policy

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Speaker 1: rates should be at the end of the year. I

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Speaker 1: think there's no question they were going to move up

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Speaker 1: at that meeting until you had the issue in the

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Speaker 1: banking sector. So now the question we're asking about May's, well,

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Speaker 1: they don't have to update those dots, but they have

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Speaker 1: to give us some indication of will there be further

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Speaker 1: rate hikes or will there not be further rate hikes.

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Speaker 1: I don't know that you can do again what Central

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Speaker 1: banks did a week or two weeks ago. If you

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Speaker 1: remember the ECB hiking by fifty basis points and basically

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Speaker 1: saying we can't tell you where we go from here.

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Speaker 1: I think in May, at that time there'll be enough

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Speaker 1: time to view the data, understand what's going on with

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Speaker 1: financial stability, give some guidance will there be further rate

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Speaker 1: hikes or will there not be further rate hikes. They'll

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Speaker 1: have to make a decision. Well, the new line, I

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Speaker 1: think is additional policy, firming additional policy from whatever whatever

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Speaker 1: that means. I'm sure they spent a long time coming

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Speaker 1: up with that. Clearly they believe that what's developed in

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Speaker 1: the banking system is a substitute for rate hikes. And

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Speaker 1: to your point about the dot plot, I think we

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Speaker 1: can probably agree around the table that if we got

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Speaker 1: the dot plot three weeks ago, that was going from

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Speaker 1: five point one to five to sixty. So let's say

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Speaker 1: they believe the development to the last couple of weeks

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Speaker 1: are worth about fifty basis points. I've got no idea

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Speaker 1: how much conviction they've got behind that view, or whether

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Speaker 1: that really is their view, But I think we can

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Speaker 1: read between the lines. Andrew, how on earth do you

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Speaker 1: make an estimate as to how much the tightening of

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Speaker 1: lending standards may develop off the back of the story

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Speaker 1: the last couple of weeks and have had equates with

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Speaker 1: a level in FED funds. Yeah, I think it's really

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Speaker 1: really difficult, and I worry a little bit about these

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Speaker 1: statements that the tightening and credit conditions it's going to

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Speaker 1: substitute for exactly twenty five or exactly fifty basiness point

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Speaker 1: of rate hikes, because you're making an assumption first about

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Speaker 1: how policy rates transmit through the financial conditions broadly, and

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Speaker 1: then how financial conditions broadly transmit through to the real economy,

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Speaker 1: and think about what's happened here. There's all this talk

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Speaker 1: about substituting for rate hikes. Well, we were pricing policy

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Speaker 1: rates to go above five and a half percent. We

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Speaker 1: had two year yields above five percent. Now we have

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Speaker 1: two year yields around four percent, one hundred bases points lower.

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Speaker 1: So do we think the tightening of credit conditions substitutes

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Speaker 1: for one hundred bases point lower two year treasury yield

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Speaker 1: because that's what's happened in the market. If we don't,

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Speaker 1: then essentially what markets are pricing is the FED to

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Speaker 1: fully offset or more than offset the tightening that we've

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Speaker 1: had in credit conditions. And that's really an issue for

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Speaker 1: the FED if they thought that they had to get

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Speaker 1: policy rates above five and a half percent, and financial

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Speaker 1: conditions are now loosening, so we have credit conditions tightening,

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Speaker 1: We have financial conditions loosening. If you saw the housing

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Speaker 1: data yesterday and over the last month, every indicator is

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Speaker 1: turning up now, so we have a bottom in the

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Speaker 1: housing market. It's rising from a bottom. I think that

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Speaker 1: should be another concern where you say we were trying

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Speaker 1: to slow down this economy. Now the sector that's most

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Speaker 1: responsive to interest rates is starting to re accelerate. To

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Speaker 1: your point, given where market pricing is now, how vulnerable

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Speaker 1: is the infrastructure of a market that's been whipside again

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Speaker 1: and again and has a lot of fragilities baked in

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Speaker 1: through leverage. How vulnerable is this market to a FED surprise,

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Speaker 1: a massive FED surprise that disrupts where things are now.

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Speaker 1: I think that's the other real issue for FED officials now,

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Speaker 1: especially given the new emphasis on financial stability risks. As

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Speaker 1: a central bank, you're always trying to smoothly and incrementally

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Speaker 1: guide policy rates, guide market pricing to what you think

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Speaker 1: is the right level to be consistent with mandate consistent inflation.

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Speaker 1: And the issue for the FED now is we have

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Speaker 1: this huge disconnect between where the dots are and where

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Speaker 1: the market is. Like we were just talking about, if anything,

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Speaker 1: FED officials maybe wanted to go a bit higher than that.

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Speaker 1: If we start seeing the inflation to come and strong again,

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Speaker 1: and we think we will over the next few months,

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Speaker 1: all of a sudden we could be back in this

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Speaker 1: world with FEDE officials think the policy raising needs to

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Speaker 1: be much higher. And then can you get there in

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Speaker 1: an incremental and smooth way or does this become a

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Speaker 1: more violent adjustment? And again, I mean, look look at

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Speaker 1: the volatility we signed to your yields. I mean, in

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Speaker 1: some ways that's reflecting the fact that we could very

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Speaker 1: quickly replace what the FED is going to do if

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Speaker 1: they're in a massive bind right now. I think once

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Speaker 1: you get in the business of acknowledging that you think

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Speaker 1: the developments of the last couple of weeks or a

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Speaker 1: substitute for rate hikes if they get worse. I just

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Speaker 1: wonder how you can keep saying that we're going to

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Speaker 1: get no rate cuts this year, because if you believe

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Speaker 1: they're a substitute and we're very close to what you've

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Speaker 1: indicated as terminal, then ultimately you should be pulling back

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Speaker 1: if things get worse with us now in place to

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Speaker 1: say is Peter Ship they head a Mactrice strategy at

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Speaker 1: Academy Securities. Let's talk about this equity market. The Nastack

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Speaker 1: rip it from a descemberow what more than twenty percent?

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Speaker 1: Whiley of black Rock said earlier on this week that

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Speaker 1: this market believes we're going back to the old playbook,

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Speaker 1: right cuts get along the Nastack, she says, we're not

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Speaker 1: going back to the old playbook. Pete, what do you say?

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Speaker 1: I would agree with that. I think the NASDAC rally

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Speaker 1: is a bit overdone. People are expecting the same sort

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Speaker 1: of performance we saw post COVID, and I think the

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Speaker 1: conditions are just very different. It's not a supporter for

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Speaker 1: that as a whole, though. I think we wanted to

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Speaker 1: range trade this equity market. Right as things start getting good,

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Speaker 1: the fat comes more into play, and as things deteriorate,

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Speaker 1: the fat comes into play the other direction. So, Pete,

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Speaker 1: that range at the moment, at least since November has

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Speaker 1: been thirty eight hundred to forty two hundred on the SMP.

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Speaker 1: Is that the range of sticks? Yeah? I think so.

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Speaker 1: I'm certainly now fading this rally in the SMP. I'm

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Speaker 1: fading it more through the NASTAC just because I think

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Speaker 1: the old performance there has been greater, and I don't

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Speaker 1: like the narrative that we return to twenty twenty two.

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Speaker 1: The one thing that remains outstanding for me on the banks,

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Speaker 1: and I think this is one thing that's different than

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Speaker 1: the US versus Europe is people here have alternatives to

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Speaker 1: earning more than zero point two percent or whatever bank

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Speaker 1: deposit is paying because we've had this gap in rates,

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Speaker 1: and I think people are just becoming aware of that.

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Speaker 1: So that's what I'm watching to see. If we see

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Speaker 1: ongoing deposits leaving the banking system, nothing to do with

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Speaker 1: credit concerns and everything to do with what is a

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Speaker 1: better yield alternative, And that's not the case in Europe

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Speaker 1: yet because they just started their hiking cycle. Do you

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Speaker 1: think that this concept of the natural disinflation, the immaculate

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Speaker 1: disinflation hasn't gone away and it's almost embedded right now.

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Speaker 1: And what we're seeing, which is that the FED has

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Speaker 1: an excuse not to hike rates further into cut rates

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Speaker 1: and that everything will be just fine and inflation will

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Speaker 1: naturally go away. I've been in the camp that we

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Speaker 1: are generally headed towards deflation, especially in the goods camp,

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Speaker 1: and we had four or five solid months right from

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Speaker 1: September of last year till January this year, where you

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Speaker 1: saw nothing but deflation. We saw the data bounce a

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Speaker 1: little bit. Right now, you look at inventories, they're creeping

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Speaker 1: higher again. You start looking at shipments and free they're

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Speaker 1: going lower. So I think, on the good side of

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Speaker 1: the we're still in an overall deflationary environment. So I

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Speaker 1: think that pulls down. I think housing is pulling down.

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Speaker 1: Healthcare is something to watch. But yes, I think we

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Speaker 1: have overreacted. We have to give this more time, and

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Speaker 1: as these companies are pulling back on their jobs, I

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Speaker 1: think that just filters through. What we've lost sight of.

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Speaker 1: I think is that there is this long and lag

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Speaker 1: effect and we're not giving it time. The problem is,

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Speaker 1: as market participants, we don't have that time. We're moving

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Speaker 1: so quickly. Now you have to be right ahead of

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Speaker 1: the time. At what point does the four percent implied

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Speaker 1: FED funds rate by January of next year, these things

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Speaker 1: enough to reinflate some of those prices that have started

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Speaker 1: to come down, you know right now. That's why the

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Speaker 1: one thing I'm betting on is that either they can't

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Speaker 1: hike as much as people are pricing in but I

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Speaker 1: also do not think that we see massive cuts by

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Speaker 1: the FAT. I think they're going to try and balance this.

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Speaker 1: I think they're going to be very reluctant. I think

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Speaker 1: we had a huge unlined of positions, especially in the

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Speaker 1: two years, so some of those data, that data and

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Speaker 1: how we're looking at what's going on further is just misprice.

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Speaker 1: So I would not bet against the bed cutting a lot. Well, Pete,

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Speaker 1: as you know, spreads this large aren't resolved by a speech,

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Speaker 1: That resolved by incoming information. So can we keep returning

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Speaker 1: back to something Lisha and I've been talking about over

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Speaker 1: the last couple of weeks, what is the incoming information

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Speaker 1: that will resolve that spread? Is it CPI, payrolls, is

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Speaker 1: it lending standards? What is it? You know, I think

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Speaker 1: it's going to be payrolls in particular, that's the one

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Speaker 1: area that we had seen wage inflation take up, it

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Speaker 1: was coming back down. Jobs have been probably the single

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Speaker 1: strongest thing when for the last six months, at any

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Speaker 1: given time, there are two or three things that you

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Speaker 1: point to that were weak, and one thing that was

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Speaker 1: constantly strong was jobs. So watch out what's happening in jobs.

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Speaker 1: A lot of people are still scratching their head. How

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Speaker 1: can we get these layouts and they're not showing up

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Speaker 1: in the jobs number, So that'd be the one area

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Speaker 1: I think if jobs continue, the Fed's going to have

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Speaker 1: to hike. If they come back, maybe a little bit

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Speaker 1: of reality reflect some of the anecdotal evidence. Maybe that's

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Speaker 1: what lets the Fed pause. Do you think the market

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Speaker 1: in the maintime for the next month or so, Pete,

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Speaker 1: is desensitize somewhat to that data point, because the focus

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Speaker 1: overwhelmingly is on bank stocks and what's happening in that sector.

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Speaker 1: You know, I think hopefully we can move away a

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Speaker 1: little bit from bank stocks. I think that's calming. It's

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Speaker 1: all about do they keep deposits given us youel differential,

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Speaker 1: and now it's time to start thinking about, Okay, where

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Speaker 1: is the economy and what reads do we get as

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Speaker 1: we start earnings And again, it's not going to be

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Speaker 1: about this sport's earnings. It's going to be what the

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Speaker 1: future outlook is, and I think that's very questionable, Pete,

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Speaker 1: this was great as always, Peter, chair that of Academy Securities. Peter,

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Speaker 1: thank you. Let's get back to the banking system. Joining

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Speaker 1: us now after two days of testament on Capitol Hill

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Speaker 1: from US regulators. Mara Rodrie gets Valladata's the principal at

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Speaker 1: MRV Associates. Mora, let's start here. What did you learn

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Speaker 1: over the last couple of days. Well, I think we

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Speaker 1: really learned that history matters, and this is what happens

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Speaker 1: when we have such a significant decline in history majors

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Speaker 1: because people forget things. They forget that basic interest rate,

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Speaker 1: risk management, and liquidity measures are at the heart of

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Speaker 1: being a bank. So there's certainly going to be some

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Speaker 1: changes in terms of supervisory and on site examination processes,

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Speaker 1: but there's still a lot we don't know. Where is

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Speaker 1: Where is Greg Becker? He needs to be there, he

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Speaker 1: is at the end of the day, where the box stops.

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Speaker 1: Where were the board members? We haven't heard from any

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Speaker 1: of them. They're the ones that are supposed to provide oversight.

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Speaker 1: It's not the FED or the California regulators that run

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Speaker 1: the bank. So we still are missing from the whole

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Speaker 1: range of cast of characters who were really responsible here.

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Speaker 1: In the meantime, the bill we've heard is twenty three

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Speaker 1: billion dollars at the FDIC incurred and is not taxpayer funded. Bailout.

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Speaker 1: It is JP Morgan funded bailout. How much is there

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Speaker 1: going to be some sort of consequence to the major

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Speaker 1: banks having a special assessment that leaves the FDIC hall right?

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Speaker 1: And I can't imagine that JP Morgan City Bank, all

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Speaker 1: of the globally systemically important banks in this country are

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Speaker 1: happy about this. They are not the problem. They're very

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Speaker 1: very liquid, they're very well capitalized, and they certainly don't

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Speaker 1: have concentrations of deposits the way that SVB did. And

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Speaker 1: then the other regional banks are certainly going to take

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Speaker 1: a hit. I don't believe the community banks will. I

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Speaker 1: think there's absolutely no political will on either side of

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Speaker 1: the aisle to hit the community banks. But at the

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Speaker 1: end of the day, it's going to be the American

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Speaker 1: consumer who is going to take a hit, because eventually,

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Speaker 1: when premier rise for banks, eventually it gets passed on

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Speaker 1: to depositors. So this is not going to be any

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Speaker 1: kind of free launch for the regular, ordinary American who

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Speaker 1: had nothing to do with svb's horrible mismanagement. You talked

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Speaker 1: about history and sort of a lack of history. Majors.

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Speaker 1: Greg ip in the Wall Street Journal wrote this column

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Speaker 1: about how perhaps This isn't the same kind of two

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Speaker 1: thousand and eight financial crisis where it happens all at once,

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Speaker 1: and rather it's a slow moving crisis of smaller and

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Speaker 1: medium sized banks losing relevance and losing some of their

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Speaker 1: pre eminence in markets. Does that resonate with you? Unfortunately

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Speaker 1: it does. I think what we're seeing here is that

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Speaker 1: you're going to have a wide range of investors, journalists,

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Speaker 1: pundits who are now looking, Okay, where's the next trouble spot.

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Speaker 1: We have banks that have incredibly large portfolios of souring

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Speaker 1: real estate loans. You also have leveraged companies that have

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Speaker 1: very little in protection for the lenders. So there are

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Speaker 1: some trouble spots there. They've been there all along. But

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Speaker 1: with stock prices going up, investors were happy. The minute

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Speaker 1: that you have a lot of volatility or you have

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Speaker 1: stock prices going down, investors rediscover the religion of good

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Speaker 1: due diligence in terms of credit. So I think we're

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Speaker 1: going to have a lot of dribs and drabs of

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Speaker 1: these kinds of issues. People are now talking about so

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Speaker 1: called odd accounting rules or unusual accounting rules. No, those

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Speaker 1: have been there all along, So you can move bonds around.

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Speaker 1: You can also make all kinds of changes with non

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Speaker 1: performing loans and loan loss reserves. So I think every

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Speaker 1: time that investors nitpick a bit more or journalists nitpick

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Speaker 1: a bit more, they're going to find that there are

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Speaker 1: some serious problems that still have not been resolved in

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Speaker 1: the world of bank regulation, supervision and accounting. Mario know

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Speaker 1: how this works. One week later, an equity market roundy later,

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Speaker 1: and the questions, the urgency just kind of dissipates. We've

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Speaker 1: seen that over the last week. I mentioned this with

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Speaker 1: least a few times. Last week, the big question was

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Speaker 1: do we need legistive to change right now? What do

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Speaker 1: we need to change? What do you need to do,

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Speaker 1: like in the next twenty four hours, what do we

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Speaker 1: need to change? I think what we need to change

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Speaker 1: is to make sure that regulators, both statewide at at

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Speaker 1: a federal level are empowered to do their job. You

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Speaker 1: need to remove heads of banks from being at the

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Speaker 1: district bank, so try to remove those conflicts of interest.

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Speaker 1: And you really need to take this. You need to

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Speaker 1: change the structure. You need to empower are both offsite

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Speaker 1: and onsite examiners to do their job. The problem is

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Speaker 1: that when any one of them steps up and tries

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Speaker 1: to tell the truth, right, there's no incentive to do that.

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Speaker 1: And you do need to make sure that those banks

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Speaker 1: that are one hundred billion and more are properly regulated

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Speaker 1: and supervised. You do need to do away with a

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Speaker 1: Trump rule e gr RCPA that d designated, or change

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Speaker 1: the definition as to what is a systemically important bank,

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Speaker 1: because those regional banks, by definition, are very concentrated and

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Speaker 1: they are very important in those regions. And hopefully this

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Speaker 1: time around, politicians on both sides of the aisle have

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Speaker 1: learned the importance of not watering down those regulations. That's

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Speaker 1: implied by the very fact that a couple of weekends

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Speaker 1: ago they had to use these systemic risk exception for

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Speaker 1: these banks. Maria, thank you for joining us. As always.

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Speaker 1: Mario Rodriquez Valadaris of MFI Associates pleased to say that

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Speaker 1: joining us around the table here in New York is

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Speaker 1: Steve Paliucer, senior advisor, a bank capital founder and CEO

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Speaker 1: of PAGs Group Capital Partners and co owner of the

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Speaker 1: Boston South Tis and Steve, it doesn't end there, but

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Speaker 1: we haven't got a time, all right. It's good to

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Speaker 1: see brackets. Can we start there? Steve Brackets for a cause,

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Speaker 1: it's a great tradition here at Bloomberg as well. To

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Speaker 1: put this together. March Madness happens every year. I can't

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Speaker 1: follow it, but it's college basketball and everyone gets very excited.

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Speaker 1: And you've done pretty well this year. Yeah, I'm excited. Uh,

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Speaker 1: it's a it's a great group and this has probably

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Speaker 1: be in the medus March. Ever, so, how many teams

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Speaker 1: have you got left? Because the last time I tried

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Speaker 1: to do this, I think I was out after the

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Speaker 1: first couple of days. It was like, bracket done. I

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Speaker 1: can't even fill in all the boxes. Who have you

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Speaker 1: got left? I think I got one team left? One

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Speaker 1: team left? You can't? And if you come top three?

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Speaker 1: What's your charity? Charity is the Reform Alliance? Okay? What

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Speaker 1: do they do? State? There are organizations set up by

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Speaker 1: Bob Craft and Michael Ruben to basically help help prisoners

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Speaker 1: get out get jobs when they get out of prison.

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Speaker 1: We have a huge prison reform situation in this country.

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Speaker 1: We've got to we've got to really help people get

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Speaker 1: out of that cycle. And that's an organization nationally. It's

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Speaker 1: been set up to do there, and uh, I have

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Speaker 1: a double bonus this year, and that my son actually

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Speaker 1: left his job and he works for the Reform Alliance,

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Speaker 1: you know, try to help them, so they should get

431
00:21:28,280 --> 00:21:29,800
Speaker 1: some money off the back of this. I hope, So,

432
00:21:29,800 --> 00:21:31,800
Speaker 1: I hope. So gonna finish we have you have to

433
00:21:31,840 --> 00:21:35,320
Speaker 1: go home tonight and say go Yukon Go. If Yukon wins,

434
00:21:35,960 --> 00:21:39,119
Speaker 1: Reform Alliance gets the money. So go Yukon one, go

435
00:21:39,280 --> 00:21:45,760
Speaker 1: sound another one and go at Atalanta, Fort Atalanta? When

436
00:21:45,760 --> 00:21:47,679
Speaker 1: does this end? Are you done? Now? You've got enough

437
00:21:47,720 --> 00:21:50,520
Speaker 1: sports teams? You never know. I'm really enjoying the ones

438
00:21:50,560 --> 00:21:53,560
Speaker 1: that we have right now and they're winning, and I'm

439
00:21:53,560 --> 00:21:55,560
Speaker 1: actually gonna go to Milwaukee tonight and see see the

440
00:21:55,560 --> 00:21:58,160
Speaker 1: big game self explaining Milwaukee the number one verse number

441
00:21:58,200 --> 00:21:59,440
Speaker 1: two in the East. So that'd be a lot of fun.

442
00:21:59,600 --> 00:22:01,480
Speaker 1: You have a life that a lot of people would envy.

443
00:22:01,520 --> 00:22:04,320
Speaker 1: I'm wondering there has been a lot of interest in

444
00:22:04,400 --> 00:22:07,880
Speaker 1: getting into the professional sports game for quite a while.

445
00:22:07,960 --> 00:22:10,040
Speaker 1: We talked about that during some of the heydays of

446
00:22:10,320 --> 00:22:13,480
Speaker 1: low interest rates. Have you found that change as it

447
00:22:13,520 --> 00:22:16,720
Speaker 1: becomes more difficult to access capital for a number of individuals,

448
00:22:16,760 --> 00:22:19,639
Speaker 1: Perhaps not yourself. Well, it really has changed, you know.

449
00:22:19,720 --> 00:22:22,440
Speaker 1: I think when when we did the Celtics purchase, it

450
00:22:22,480 --> 00:22:24,359
Speaker 1: was something like three hundred and sixty million, and the

451
00:22:24,359 --> 00:22:27,240
Speaker 1: average NBA club is worth three or four billion now,

452
00:22:28,040 --> 00:22:30,840
Speaker 1: so it's been it's been a huge increase. But actually

453
00:22:30,880 --> 00:22:34,000
Speaker 1: the markets have responded their firms that invest in sports

454
00:22:34,000 --> 00:22:38,840
Speaker 1: franchises specifically, and people put together consortiums to get liquidity.

455
00:22:39,200 --> 00:22:41,680
Speaker 1: But you feel like there is less interest, that people

456
00:22:41,720 --> 00:22:44,080
Speaker 1: now are sort of focused more on the nuts and

457
00:22:44,160 --> 00:22:47,959
Speaker 1: bolts of existence rather than you know, just the sport

458
00:22:48,080 --> 00:22:51,640
Speaker 1: of it, because there is perhaps other opportunity, but also

459
00:22:51,680 --> 00:22:55,480
Speaker 1: because they are constrained. No, I think it's remained the same.

460
00:22:55,480 --> 00:23:00,520
Speaker 1: It's it's a highly competitive, fun environment and in Boston,

461
00:23:00,840 --> 00:23:03,600
Speaker 1: you know, number one sports town in the country. Uh,

462
00:23:03,800 --> 00:23:06,720
Speaker 1: it's just it's just a pleasure and sports has kind

463
00:23:06,720 --> 00:23:10,560
Speaker 1: of transcended society, and the teams are really doing a

464
00:23:10,600 --> 00:23:12,680
Speaker 1: lot of good in the community. NBA Cares, for example,

465
00:23:13,240 --> 00:23:16,960
Speaker 1: Boston Celtics United for Social Justice. They're fantastic organizations that

466
00:23:17,040 --> 00:23:19,280
Speaker 1: go out and help the community. So it's really become intertwined.

467
00:23:19,359 --> 00:23:22,280
Speaker 1: Can we discuss exits you're clearly a fan. How do

468
00:23:22,320 --> 00:23:24,679
Speaker 1: you think about a potential exit when you have a

469
00:23:24,720 --> 00:23:28,440
Speaker 1: stake in a sporting organization and you see the appreciation

470
00:23:28,480 --> 00:23:30,840
Speaker 1: in the overall league. I'm thinking about the Glazers and

471
00:23:30,920 --> 00:23:34,160
Speaker 1: Man United. I'm thinking about John Henry over it over Liverpool.

472
00:23:34,160 --> 00:23:36,520
Speaker 1: They're clearly looking at these levels and thinking that maybe

473
00:23:36,520 --> 00:23:38,480
Speaker 1: now is the time to exit. How do you think

474
00:23:38,480 --> 00:23:42,240
Speaker 1: about that? Well, our philosophy is a family office is

475
00:23:42,280 --> 00:23:44,159
Speaker 1: just a long term hold. It's a great asset for

476
00:23:44,200 --> 00:23:47,160
Speaker 1: a long term hold. Um. So you know, I would

477
00:23:47,160 --> 00:23:49,760
Speaker 1: hope to go to the grave own owning these assets myself,

478
00:23:50,640 --> 00:23:54,720
Speaker 1: hopefully hopefully quite a while from now, but but really

479
00:23:54,760 --> 00:23:57,320
Speaker 1: long term hold. I think they're long term hold opportunities.

480
00:23:57,760 --> 00:24:01,000
Speaker 1: And now the appreciations and so much people that got

481
00:24:01,000 --> 00:24:03,480
Speaker 1: in earlier that want to get cashed. There's there's a

482
00:24:03,520 --> 00:24:05,720
Speaker 1: big market out there of individuals want to get involved

483
00:24:05,720 --> 00:24:08,160
Speaker 1: in sports teams and so they'll be successful doing that.

484
00:24:08,480 --> 00:24:11,520
Speaker 1: We're seeing very high evaluations right now because of the

485
00:24:11,520 --> 00:24:13,840
Speaker 1: interest in it and because of the growing television revenues

486
00:24:13,920 --> 00:24:18,359
Speaker 1: and the whole television landscape changing now as as we

487
00:24:18,640 --> 00:24:21,880
Speaker 1: go from bundling to unbundling back to bundling again, um

488
00:24:22,359 --> 00:24:25,600
Speaker 1: and and and sports programming is the one solid thing

489
00:24:25,600 --> 00:24:28,720
Speaker 1: in there. People still will tune in and watch that live.

490
00:24:28,760 --> 00:24:31,399
Speaker 1: So it's become very valuable to all these digital properties

491
00:24:31,720 --> 00:24:34,639
Speaker 1: and the networks and news as well, state not just sport.

492
00:24:34,680 --> 00:24:38,640
Speaker 1: Just thrown that out those Sports Center news sports first,

493
00:24:38,720 --> 00:24:41,440
Speaker 1: thank you st thanks for that. Now that's sport, that's

494
00:24:41,440 --> 00:24:45,320
Speaker 1: sporting organizations across basketball, football, take your pick. Let's talk

495
00:24:45,320 --> 00:24:47,800
Speaker 1: about the border of economy right now. If you've got

496
00:24:47,800 --> 00:24:50,359
Speaker 1: money to put to work at the moment, how easy

497
00:24:50,440 --> 00:24:54,879
Speaker 1: is it to transact? There's still plenty of opportunity out there. Um,

498
00:24:55,040 --> 00:24:57,840
Speaker 1: there's a growing biotech sector in the United States, in Boston,

499
00:24:57,880 --> 00:25:01,600
Speaker 1: San Francisco, m still technology companies that are that are

500
00:25:01,600 --> 00:25:04,160
Speaker 1: doing well. And this this period reminds me of coming

501
00:25:04,200 --> 00:25:07,359
Speaker 1: off of the kind of tech crash in ninety nine.

502
00:25:07,440 --> 00:25:10,720
Speaker 1: We had a very overvalued situation in tech and then

503
00:25:10,840 --> 00:25:13,240
Speaker 1: and then I remember in those days, I would fly

504
00:25:13,280 --> 00:25:15,359
Speaker 1: out to California and someone would give me a term sheet,

505
00:25:15,840 --> 00:25:17,639
Speaker 1: say you have two days to decide. You know, this

506
00:25:17,680 --> 00:25:20,280
Speaker 1: company's worth one hundred one hundred million. It has no sales,

507
00:25:20,480 --> 00:25:22,080
Speaker 1: but it's a great idea to put on the internet.

508
00:25:22,320 --> 00:25:25,159
Speaker 1: And I was incredulous I mean I literally had seventeen

509
00:25:25,240 --> 00:25:28,640
Speaker 1: or eighteen of these meetings, and I I was disoriented,

510
00:25:29,040 --> 00:25:31,400
Speaker 1: and we actually I think I think the only year

511
00:25:31,440 --> 00:25:34,280
Speaker 1: Bank Capital didn't make a major investment was nineteen ninety nine,

512
00:25:34,320 --> 00:25:36,919
Speaker 1: thank goodness, and then that all crashed down in April.

513
00:25:37,720 --> 00:25:39,800
Speaker 1: But do you feel like we've gotten the washout that

514
00:25:39,920 --> 00:25:43,320
Speaker 1: eventually you got in nineteen ninety nine heading into two thousand,

515
00:25:43,480 --> 00:25:46,040
Speaker 1: or do you feel like this still is a tenuous

516
00:25:46,080 --> 00:25:49,800
Speaker 1: moment where evaluations haven't found their floor in any way?

517
00:25:50,440 --> 00:25:53,800
Speaker 1: I would say it's still tenuous, and people are going

518
00:25:53,840 --> 00:25:56,560
Speaker 1: back to the basics, back to fundamentals, looking at cash flow,

519
00:25:56,920 --> 00:26:00,399
Speaker 1: looking at can the company be profitable. You can't have

520
00:26:00,400 --> 00:26:02,919
Speaker 1: a thousand year timeframe anymore when interest rates or have

521
00:26:03,000 --> 00:26:05,200
Speaker 1: gone from you know, next to zero to five and

522
00:26:05,200 --> 00:26:08,480
Speaker 1: a half percent for a T bill. And you know,

523
00:26:08,520 --> 00:26:10,480
Speaker 1: most of my career, I think three quarters of my

524
00:26:10,520 --> 00:26:12,960
Speaker 1: career T bills were at four to five percent the

525
00:26:13,000 --> 00:26:15,600
Speaker 1: vast majority of the time. So we really got trapped

526
00:26:15,600 --> 00:26:18,200
Speaker 1: in this easy money period for the last ten or

527
00:26:18,240 --> 00:26:21,600
Speaker 1: twelve years, and now the reckoning has come. One thing

528
00:26:21,600 --> 00:26:23,560
Speaker 1: that you're so wonderful about is you've got an incredible

529
00:26:23,640 --> 00:26:27,200
Speaker 1: view into so many smaller companies and how they're accessing credit.

530
00:26:27,520 --> 00:26:29,520
Speaker 1: We've been talking a lot about the potential for a

531
00:26:29,520 --> 00:26:32,760
Speaker 1: restriction and credit really weakening the profile of these companies.

532
00:26:33,000 --> 00:26:36,840
Speaker 1: Have you seen any evidence of that accelerating, especially over

533
00:26:36,880 --> 00:26:39,040
Speaker 1: the past couple of months. It's definitely an issue that

534
00:26:39,160 --> 00:26:42,399
Speaker 1: we've invested in about forty or fifty venture companies in

535
00:26:42,440 --> 00:26:45,680
Speaker 1: my family office, and many of them need more capital

536
00:26:45,720 --> 00:26:49,040
Speaker 1: because the banks are with the Silicon Valley situation, they're

537
00:26:49,040 --> 00:26:51,280
Speaker 1: reining in and making sure these companies have more capital

538
00:26:51,320 --> 00:26:54,159
Speaker 1: to pay back those loans. So the market's reacting and

539
00:26:54,160 --> 00:26:56,399
Speaker 1: there is capital out there. But I think that's something

540
00:26:56,400 --> 00:26:59,119
Speaker 1: to watch for sure, Steve, we've talked about what to watch,

541
00:26:59,440 --> 00:27:03,560
Speaker 1: the tradition only eight indicators, CPI, payrolls and whether it's

542
00:27:03,640 --> 00:27:05,520
Speaker 1: lending standard up for the next couple of months. What

543
00:27:05,600 --> 00:27:07,600
Speaker 1: do you watch every single day? How do how do

544
00:27:07,640 --> 00:27:10,520
Speaker 1: you gauge things at the moment? Well, I actually travel

545
00:27:10,600 --> 00:27:11,840
Speaker 1: around so much. I try to get out there in

546
00:27:11,840 --> 00:27:14,080
Speaker 1: the real economy and see what's happening and talked to

547
00:27:14,200 --> 00:27:16,960
Speaker 1: talk to lots and lots of people, and you know,

548
00:27:17,000 --> 00:27:19,800
Speaker 1: we've had this this kind of savings build up through COVID,

549
00:27:19,800 --> 00:27:22,840
Speaker 1: which is which is a good thing. And when you

550
00:27:22,880 --> 00:27:25,600
Speaker 1: go in New York, restaurants are crowded. Every every flight

551
00:27:25,640 --> 00:27:28,680
Speaker 1: I'm on is crowded. So I haven't seen, personally, I've

552
00:27:28,960 --> 00:27:31,480
Speaker 1: seen a huge economic slowdown. There's still there's still money

553
00:27:31,480 --> 00:27:34,640
Speaker 1: out there, there's lots of jobs, there's jobs, there's job offerings.

554
00:27:34,640 --> 00:27:37,480
Speaker 1: Many of these tech cuts are because the tech companies

555
00:27:37,480 --> 00:27:40,679
Speaker 1: overspent or with cheap money, just went into areas they

556
00:27:40,720 --> 00:27:43,000
Speaker 1: should have never gone into. So I don't believe those

557
00:27:43,040 --> 00:27:45,240
Speaker 1: are fundamental, you know, cutting to the core of the

558
00:27:45,240 --> 00:27:47,879
Speaker 1: tech companies. That's just a restructuring to get back to

559
00:27:47,920 --> 00:27:50,040
Speaker 1: the basics and get back to where they're really adding

560
00:27:50,080 --> 00:27:52,960
Speaker 1: value and making money rather than trying to send a

561
00:27:53,000 --> 00:27:57,359
Speaker 1: man to the moon. The Year of Efficiency at METSA. Yeah, yeah,

562
00:27:57,400 --> 00:28:00,880
Speaker 1: seventy gain. Still plenty of guys trying to send people

563
00:28:00,920 --> 00:28:03,119
Speaker 1: to the moon. Yeah, exactly, there's still are a lot

564
00:28:03,200 --> 00:28:06,680
Speaker 1: of Yes, we talked about that. Hey, this is great.

565
00:28:06,800 --> 00:28:08,600
Speaker 1: Soon you guys will be to be doing interviews in

566
00:28:08,640 --> 00:28:10,280
Speaker 1: the moon in ten years. I'm looking for and maybe

567
00:28:10,280 --> 00:28:11,760
Speaker 1: I'll look forwards to going up that with you. Yeah,

568
00:28:11,800 --> 00:28:16,960
Speaker 1: I was about to say, perhaps, Yeah, first a little

569
00:28:17,119 --> 00:28:20,400
Speaker 1: sorry Bristle, no doubt. Steve found your crypt bank Cappo, Steve,

570
00:28:20,480 --> 00:28:26,800
Speaker 1: thank you, sir. Let's bring in Doug cast to talk

571
00:28:26,800 --> 00:28:30,760
Speaker 1: about this se Seabreez Partners President. I think it's safe

572
00:28:30,760 --> 00:28:32,439
Speaker 1: to say a friend of the show, Doug. I listened

573
00:28:32,440 --> 00:28:35,520
Speaker 1: to this show typically when Tom and Paul are anchoring,

574
00:28:35,560 --> 00:28:38,560
Speaker 1: so I hear you on here. I love listening to

575
00:28:38,920 --> 00:28:41,800
Speaker 1: your take, and you've got one out in your most

576
00:28:41,840 --> 00:28:45,240
Speaker 1: recent note on UM on the banking situation. What do

577
00:28:45,280 --> 00:28:48,000
Speaker 1: you think about the turmoil some would say crisis that

578
00:28:48,080 --> 00:28:52,160
Speaker 1: we've experienced. Is it behind us? Sure? Um? First of all,

579
00:28:52,160 --> 00:28:55,040
Speaker 1: good morning, and hey Pramo, first time, long time, Hey,

580
00:28:55,080 --> 00:28:58,880
Speaker 1: good morning. There's an English expression, you know, I always

581
00:28:58,920 --> 00:29:03,440
Speaker 1: try to come out, Matt, you know, provide some differentiated viewpoints,

582
00:29:03,640 --> 00:29:07,800
Speaker 1: not the regular bullet memorized bullet points, the permits and

583
00:29:08,800 --> 00:29:11,680
Speaker 1: bulls and the permit bears. Anyway, there is an English

584
00:29:11,680 --> 00:29:14,280
Speaker 1: expression that has claimed to be a translation of a

585
00:29:14,320 --> 00:29:18,480
Speaker 1: traditional Chinese curse. May you live in interesting times? And

586
00:29:18,560 --> 00:29:21,120
Speaker 1: I think it's an apt description of the market and

587
00:29:21,280 --> 00:29:23,600
Speaker 1: the current business events over the last couple of weeks.

588
00:29:24,320 --> 00:29:26,760
Speaker 1: I guess based upon the news over the last month,

589
00:29:26,880 --> 00:29:29,480
Speaker 1: we have to relearn some old lessons from all this.

590
00:29:30,840 --> 00:29:36,800
Speaker 1: What are the lessons good? Question? First, when a government

591
00:29:36,800 --> 00:29:42,080
Speaker 1: official says a problem has been contained, pay no attention. Second,

592
00:29:42,840 --> 00:29:47,640
Speaker 1: government and policymakers are the ultimate short term oriented players.

593
00:29:47,680 --> 00:29:51,600
Speaker 1: They simply can't withstand much pain in the economy or

594
00:29:51,640 --> 00:29:55,800
Speaker 1: in the financial markets, so bailouts and rescues always follow.

595
00:29:55,840 --> 00:30:00,000
Speaker 1: And I think, finally, almost no one will accept responsibilit

596
00:30:00,400 --> 00:30:03,360
Speaker 1: for his or her role in precipitating a crisis. Not

597
00:30:03,440 --> 00:30:08,040
Speaker 1: de leverage speculators, not the willfully blind leaders of our

598
00:30:08,040 --> 00:30:12,400
Speaker 1: banks and financial institutions, and certainly not our regulators, our

599
00:30:12,440 --> 00:30:16,560
Speaker 1: government officials, members of the FED rating agencies, or politicians.

600
00:30:17,000 --> 00:30:19,680
Speaker 1: And I think, if we look, getting back to Max's question,

601
00:30:19,720 --> 00:30:23,840
Speaker 1: the banking crisis was seemingly the outgrowth of poor and

602
00:30:23,840 --> 00:30:30,680
Speaker 1: aggressive individual bank managements, banking supervisory failures, coupled with monetary

603
00:30:30,720 --> 00:30:34,080
Speaker 1: policy that was pitted against the industry, at first taking

604
00:30:34,200 --> 00:30:37,200
Speaker 1: rates too low, which had a painful impact on the

605
00:30:37,320 --> 00:30:40,760
Speaker 1: net interest income in margins, and then on a time

606
00:30:40,800 --> 00:30:46,640
Speaker 1: with unprecedented climb and interest rates, rates were arose to

607
00:30:46,760 --> 00:30:51,280
Speaker 1: levels that disintermediated and exposed banks with large wholesale deposit

608
00:30:51,320 --> 00:30:56,840
Speaker 1: basis so I think that this crisis will exaggerate disinflationary

609
00:30:56,880 --> 00:30:59,800
Speaker 1: impulses and as probably single and end to the tight

610
00:31:00,160 --> 00:31:03,200
Speaker 1: cycle by slowing in the expansion and transmission of credit.

611
00:31:03,240 --> 00:31:06,160
Speaker 1: But the SMP to US is now trading at the

612
00:31:06,240 --> 00:31:09,600
Speaker 1: higher end of our projected trading range, and markets are

613
00:31:09,600 --> 00:31:13,479
Speaker 1: likely poised to again give Burne for not believing the Fed. Well,

614
00:31:13,560 --> 00:31:17,000
Speaker 1: I don't think sustained rate cuts so highly likely until

615
00:31:17,120 --> 00:31:19,640
Speaker 1: at least twenty twenty four, And I agree with your

616
00:31:19,640 --> 00:31:23,600
Speaker 1: assessment of the economy primo. Well good, I'm glad to

617
00:31:23,640 --> 00:31:25,960
Speaker 1: hear it, but I was more of the gloo exactly. Well,

618
00:31:25,960 --> 00:31:28,800
Speaker 1: hold on a second, it's it's not gloom as much

619
00:31:28,840 --> 00:31:31,560
Speaker 1: as trying to be nuanced and understanding the dissonances in

620
00:31:31,560 --> 00:31:33,520
Speaker 1: the market. And right now, one of the dissonances that

621
00:31:33,560 --> 00:31:36,840
Speaker 1: you highlighted, Dug, was that people are pricing in significant

622
00:31:36,920 --> 00:31:39,520
Speaker 1: rate cuts by the end of the year. They've retraced

623
00:31:39,560 --> 00:31:40,920
Speaker 1: a bunch of that, and I think that we should

624
00:31:40,920 --> 00:31:43,960
Speaker 1: reflect that this morning. We have seen a repricing back

625
00:31:44,120 --> 00:31:47,320
Speaker 1: upward in terms of FED funds rates later this year

626
00:31:47,600 --> 00:31:51,120
Speaker 1: and even earlier next mild but still, how much will

627
00:31:51,160 --> 00:31:54,840
Speaker 1: that really be? Not the death knell, but but really

628
00:31:55,080 --> 00:31:57,560
Speaker 1: a spike in the heart of this rally of equities

629
00:31:57,680 --> 00:32:00,880
Speaker 1: when there is a realization the yes, perhaps there will

630
00:32:00,880 --> 00:32:03,480
Speaker 1: be a pause from the FED, but not wholesale rate cuts.

631
00:32:04,320 --> 00:32:08,640
Speaker 1: That's an important factor, but there are two. I think

632
00:32:09,440 --> 00:32:14,920
Speaker 1: what contributed to this rally in part was what you

633
00:32:15,080 --> 00:32:19,160
Speaker 1: describe the decline in rates, but also a rare thing.

634
00:32:20,640 --> 00:32:24,920
Speaker 1: Mostly market positioning doesn't matter, Lisa, but to us it

635
00:32:24,960 --> 00:32:29,040
Speaker 1: has mattered a lot recently. As an example, if you

636
00:32:29,040 --> 00:32:32,959
Speaker 1: look at the American Association of Individual Investors, the bullish

637
00:32:32,960 --> 00:32:37,800
Speaker 1: reading is in the bottom two percentile, and without exception,

638
00:32:38,240 --> 00:32:42,680
Speaker 1: my hedge fund friends are are of a saturnine temperament

639
00:32:42,760 --> 00:32:47,440
Speaker 1: and are defensively positioned. And the second thing I wanted

640
00:32:47,480 --> 00:32:50,240
Speaker 1: to mention is I think that we all have a

641
00:32:50,280 --> 00:32:53,560
Speaker 1: lot of respect from my old pal Bob Farrell, and

642
00:32:54,000 --> 00:32:57,640
Speaker 1: his famous quote is that the breath of market is important,

643
00:32:57,920 --> 00:33:01,320
Speaker 1: that broad based rallies have the potential to continue, while

644
00:33:01,440 --> 00:33:05,000
Speaker 1: narrowing rallies are prone to failure. And I was reading

645
00:33:05,400 --> 00:33:09,680
Speaker 1: some interesting research from Susquehanna yesterday. As of yesterday, the

646
00:33:09,720 --> 00:33:14,680
Speaker 1: combination of Apple, Navidia, Microsoft, Meta Tesla, Amazon, Google, and

647
00:33:14,760 --> 00:33:18,360
Speaker 1: Salesforce have contributed to over one hundred and sixty percent

648
00:33:18,400 --> 00:33:20,840
Speaker 1: of the SMP gains for the year, So that means

649
00:33:20,840 --> 00:33:25,560
Speaker 1: that the SMP would be negative without these stocks. That's

650
00:33:25,560 --> 00:33:30,360
Speaker 1: a really important factoid. And if you look at just Microsoft, Amazon, Apple,

651
00:33:31,200 --> 00:33:34,040
Speaker 1: Meta and Google, they're up nineteen percent year to date,

652
00:33:34,040 --> 00:33:37,160
Speaker 1: the SMP is up four percent, which means that the

653
00:33:37,240 --> 00:33:40,240
Speaker 1: remainder of the four hundred ninety five SMP companies are

654
00:33:40,280 --> 00:33:44,080
Speaker 1: down on the year. And by the dip has been

655
00:33:44,120 --> 00:33:46,600
Speaker 1: a very successful strategy this year. Do you buy those?

656
00:33:46,720 --> 00:33:48,280
Speaker 1: Do you feel like the baby has been thrown out

657
00:33:48,320 --> 00:33:49,920
Speaker 1: at the bathwater? At least when you look at banks

658
00:33:49,920 --> 00:33:54,760
Speaker 1: and financials, we have been buying the dip. I had

659
00:33:54,800 --> 00:33:57,760
Speaker 1: a non consensus view that we'd have a good first

660
00:33:57,800 --> 00:34:00,840
Speaker 1: half when the consensus or groups was looking for a

661
00:34:00,920 --> 00:34:04,520
Speaker 1: down first half if you remember as the year started,

662
00:34:04,800 --> 00:34:07,960
Speaker 1: and but the second half would be challenging, and that

663
00:34:08,000 --> 00:34:10,080
Speaker 1: we'd end up basically with the flat year. And I

664
00:34:10,120 --> 00:34:14,400
Speaker 1: continue to see basically the market in a chop bucket

665
00:34:14,440 --> 00:34:17,080
Speaker 1: from thirty seven hundred to forty one hundred or around

666
00:34:17,120 --> 00:34:21,520
Speaker 1: forty fifty five right now. So obviously the fifty I

667
00:34:21,560 --> 00:34:23,640
Speaker 1: don't mean to be precise but this fifty to one

668
00:34:23,719 --> 00:34:26,960
Speaker 1: hundred SMP points of upside but probably three hundred twenty

669
00:34:27,000 --> 00:34:29,520
Speaker 1: five to three hundred and fifty a downside. We moved

670
00:34:29,520 --> 00:34:31,880
Speaker 1: to a market neutral position this morning, and if the

671
00:34:31,920 --> 00:34:35,640
Speaker 1: market continues to expand higher, will likely move into a

672
00:34:35,719 --> 00:34:39,120
Speaker 1: net short position. We've been talking about a divergence that

673
00:34:39,200 --> 00:34:42,360
Speaker 1: seems to be growing between the smaller the regional banks

674
00:34:42,719 --> 00:34:45,960
Speaker 1: and the larger banks for profitability, not just it with

675
00:34:46,000 --> 00:34:50,120
Speaker 1: respect to the potential for collapsing. Do you believe in that?

676
00:34:50,200 --> 00:34:52,520
Speaker 1: Do you think that there needs to be a greater

677
00:34:52,680 --> 00:34:55,600
Speaker 1: differential and a greater risk premium place to on some

678
00:34:55,719 --> 00:34:59,640
Speaker 1: of the regional banks just by virtue of the deposit

679
00:34:59,719 --> 00:35:04,279
Speaker 1: data and the concerns that will end up being higher costs. Yeah,

680
00:35:04,320 --> 00:35:07,279
Speaker 1: I think it's it's quite obvious that the small to

681
00:35:07,360 --> 00:35:12,120
Speaker 1: medium sized banks are disadvantaged right now and will be

682
00:35:12,160 --> 00:35:15,279
Speaker 1: for an extended period of time. Oddly enough, I think

683
00:35:15,280 --> 00:35:21,680
Speaker 1: the large money center banks in this banking crisis, which

684
00:35:21,680 --> 00:35:27,279
Speaker 1: we have been accumulating aggressively, may even represent a generational opportunity.

685
00:35:27,320 --> 00:35:30,680
Speaker 1: And I know that's a very differentiated view, but if

686
00:35:30,680 --> 00:35:33,080
Speaker 1: you're thinking about it, you look at JP Morgan Welles

687
00:35:33,160 --> 00:35:37,880
Speaker 1: Bank of America, the industry, the large cap banks have

688
00:35:38,480 --> 00:35:41,480
Speaker 1: reduced their leverage by half from the Great Financial Crisis.

689
00:35:41,520 --> 00:35:45,280
Speaker 1: The liquidity is more than doubled. There's no subprime credit

690
00:35:45,320 --> 00:35:50,239
Speaker 1: books have been generally de risked, notwithstanding the CRI issue, Dave.

691
00:35:50,400 --> 00:35:55,520
Speaker 1: And what is never mentioned is the humongous technology investments

692
00:35:55,680 --> 00:35:58,560
Speaker 1: a JP Morgan has spent upwards of ten billion dollars

693
00:35:58,560 --> 00:36:02,359
Speaker 1: a year behind them, and that that again advantages back

694
00:36:02,400 --> 00:36:06,120
Speaker 1: to your point, to large money center banks from their competition,

695
00:36:06,239 --> 00:36:09,680
Speaker 1: especially the smaller ones, but also the non bank entities.

696
00:36:11,160 --> 00:36:14,680
Speaker 1: And then they will pass the quite extreme stress tests.

697
00:36:14,719 --> 00:36:18,080
Speaker 1: I mean assuming those those stress tests assumed the third

698
00:36:18,080 --> 00:36:20,400
Speaker 1: lower value of commercial real estate, of having of the

699
00:36:20,440 --> 00:36:25,120
Speaker 1: stock market, etc. And I'll have to or the small

700
00:36:25,480 --> 00:36:27,919
Speaker 1: Also ironic, no one has ever mentioned that the bank

701
00:36:28,000 --> 00:36:32,040
Speaker 1: stress tests never tested an increase or spike in interest rate,

702
00:36:32,400 --> 00:36:36,200
Speaker 1: proving once again they're a bunch of effectless scoundrels. It's hey,

703
00:36:36,239 --> 00:36:40,280
Speaker 1: by the way, nothing to do or not directly related

704
00:36:40,320 --> 00:36:43,000
Speaker 1: to trading intelligence, but maybe more political or even social.

705
00:36:43,200 --> 00:36:46,200
Speaker 1: I want to get your take on the twenty eighteen

706
00:36:46,280 --> 00:36:49,160
Speaker 1: rollback of the Dodd Frank Bill, because a lot of

707
00:36:49,160 --> 00:36:53,440
Speaker 1: people have said that has been part of the problem

708
00:36:53,520 --> 00:36:56,759
Speaker 1: here in terms of you know, less regulation. On the

709
00:36:56,800 --> 00:37:00,759
Speaker 1: other hand, Barney Frank himself co author of the bill

710
00:37:00,840 --> 00:37:03,719
Speaker 1: and board member at Signature, came on the show and

711
00:37:03,760 --> 00:37:06,359
Speaker 1: said he doesn't think that had anything to do with it.

712
00:37:06,400 --> 00:37:09,760
Speaker 1: He doesn't think that regulation needs to be um beefed

713
00:37:09,840 --> 00:37:13,120
Speaker 1: up at all. What's your take? I couldn't. I couldn't

714
00:37:14,400 --> 00:37:18,720
Speaker 1: disagree with him more um, but what's the deal? He wrote,

715
00:37:18,800 --> 00:37:21,160
Speaker 1: Dodd Frank, and then he goes out and says, we

716
00:37:21,200 --> 00:37:26,440
Speaker 1: don't need regulation. The funniest thing is, um, um I talked.

717
00:37:27,040 --> 00:37:29,760
Speaker 1: I was I don't even know if you guys remember

718
00:37:30,200 --> 00:37:32,799
Speaker 1: what a nat A raider was, but anyway, I was

719
00:37:32,800 --> 00:37:34,719
Speaker 1: a NATI raider with Ralph Nader and I wrote a

720
00:37:34,719 --> 00:37:36,719
Speaker 1: book called City Bank while I was the second year

721
00:37:36,760 --> 00:37:40,800
Speaker 1: student getting my MBA award. And then we talked about, um,

722
00:37:40,920 --> 00:37:46,360
Speaker 1: the regulatory issues facing and mismatching of of assets and

723
00:37:46,440 --> 00:37:50,120
Speaker 1: liabilities that would end up with a crisis. We were

724
00:37:50,160 --> 00:37:53,759
Speaker 1: only about forty five years too early. UM. But the

725
00:37:53,920 --> 00:37:58,600
Speaker 1: regular the regulatory pullbacks, I think it was in twenty

726
00:37:58,920 --> 00:38:03,839
Speaker 1: eighteen by the four president. We're profoundly important and influential

727
00:38:03,880 --> 00:38:06,960
Speaker 1: in creating the crisis that we have today. But I

728
00:38:07,000 --> 00:38:11,480
Speaker 1: do think, Matt, that it was the supervisory functions that

729
00:38:11,640 --> 00:38:14,520
Speaker 1: really failed. Yeah, and that's gonna be one big question

730
00:38:14,560 --> 00:38:18,319
Speaker 1: as we examine the potential report that I think is

731
00:38:18,320 --> 00:38:21,080
Speaker 1: coming out next month. Nobody dropped the hammer. Yeah, well,

732
00:38:21,120 --> 00:38:25,120
Speaker 1: as exactly one senator put it, It's just the rules

733
00:38:25,160 --> 00:38:28,279
Speaker 1: were there. They were everyone was talking about it, and

734
00:38:28,360 --> 00:38:31,040
Speaker 1: no one did anything about it. An enforcement issue perhaps,

735
00:38:31,200 --> 00:38:33,440
Speaker 1: rather than an oversight issue. Dodcast, thank you so much

736
00:38:33,480 --> 00:38:37,279
Speaker 1: for being with us, Seabreep Partners President joining us on

737
00:38:37,360 --> 00:38:41,520
Speaker 1: the phone. Subscribe to the Bloomberg Surveillance Podcast on Apple, Spotify,

738
00:38:41,560 --> 00:38:44,759
Speaker 1: and anywhere else you get your podcasts. Listen live every

739
00:38:44,760 --> 00:38:47,680
Speaker 1: weekday starting at seven am Eastern on Bloomberg dot com,

740
00:38:47,680 --> 00:38:51,160
Speaker 1: the iHeartRadio app tune In, and the Bloomberg Business app.

741
00:38:51,480 --> 00:38:54,800
Speaker 1: You can watch us live on Bloomberg Television and always

742
00:38:54,840 --> 00:38:58,279
Speaker 1: on the Bloomberg Terminal. Thanks for listening. I'm Lisa Abramowitz,

743
00:38:58,320 --> 00:38:59,400
Speaker 1: and this is Bloomberg