WEBVTT - Surveillance: Citi's Fed Funds Forecast 0:00:05.040 --> 0:00:08.880 This is the Bloomberg Surveillance Podcast. I'm Lisa Abram Woids, 0:00:08.920 --> 0:00:11.879 along with Tom Keene and Jonathan Ferrell, join us each 0:00:11.960 --> 0:00:15.720 day for insight from the best in economics, geopolitics, finance 0:00:15.760 --> 0:00:20.079 and investment. Subscribe to Bloomberg Surveillance undermand on Apple, Spotify 0:00:20.160 --> 0:00:23.320 and anywhere you get your podcasts, and always on Bloomberg 0:00:23.360 --> 0:00:27.280 dot Com, the Bloomberg Terminal, and the Bloomberg Business app. Cities. 0:00:27.320 --> 0:00:30.920 Andrew Hollandhurst expects more hikes this year, says the following. 0:00:31.040 --> 0:00:34.360 In a time of incredibly anivated uncertainty. We once against 0:00:34.400 --> 0:00:37.199 see markets as underpricing the level of policy rates this 0:00:37.280 --> 0:00:40.360 year and have maintained our base case for policy rates. 0:00:40.600 --> 0:00:43.480 Here's the number way for this, five fifty to five 0:00:43.680 --> 0:00:48.080 seventy five, despite an undeniably dovish March f WEMC meeting, 0:00:48.159 --> 0:00:51.960 even with a twenty five basis point hike. Andrew Hollandhurst, 0:00:52.520 --> 0:00:54.440 the man behind the note a City, joins us here 0:00:54.440 --> 0:00:57.000 in New York Morning, Andrew, Good morning, Okay, makes sense 0:00:57.000 --> 0:00:59.240 to that five seventy five on FED funds In the 0:00:59.280 --> 0:01:02.000 face of this, I think it's not hard to make 0:01:02.040 --> 0:01:05.360 sense of if you follow the inflation data. The big 0:01:05.440 --> 0:01:07.520 question is are we going to have a FED that's 0:01:07.520 --> 0:01:11.040 focused on financial stability issues or price stability issues. I 0:01:11.080 --> 0:01:12.560 think that's what we were talking about in the node. 0:01:12.560 --> 0:01:15.839 In terms of the incredible uncertainty is it looks quite 0:01:15.920 --> 0:01:19.959 uncertain relative to whether we're going to get this focus 0:01:20.000 --> 0:01:22.000 on financial stability, which would be more dubish, or this 0:01:22.080 --> 0:01:24.680 focus on price stability, which would be more harkish. The 0:01:24.800 --> 0:01:27.160 last few days it looks like things are stabilizing a bit. 0:01:27.240 --> 0:01:29.319 We're going to get some inflation data later this week, 0:01:29.840 --> 0:01:31.720 maybe we start to move the narrative a little bit 0:01:31.760 --> 0:01:35.240 back towards price stability. Let's talk about duration mismatches and 0:01:35.360 --> 0:01:36.880 not in the bond market and not at banks, just 0:01:36.920 --> 0:01:38.560 in terms of data and when we're going to find 0:01:38.560 --> 0:01:42.399 things out. We'll get inflation data on April twelfth. I 0:01:42.480 --> 0:01:44.119 just wonder how long it's going to take to find 0:01:44.160 --> 0:01:47.200 out the financial stability issues we're on the calendar and 0:01:47.240 --> 0:01:49.160 the mismatch this fed's got to grapple with because the 0:01:49.160 --> 0:01:50.880 timeline is going to be all over the place, and 0:01:50.920 --> 0:01:53.720 if they choose financial instability, they might have to wait 0:01:54.160 --> 0:01:56.720 and wait and wait and wait. And you think it 0:01:56.800 --> 0:01:58.960 might have to wait until twenty twenty four before they 0:01:58.960 --> 0:02:01.760 see the slowdown bike. It could really take some time 0:02:01.800 --> 0:02:05.520 before you see the slowdown coming in and affecting growth 0:02:05.640 --> 0:02:08.680 data and especially inflation data. If you think about the 0:02:08.680 --> 0:02:11.239 inflation data over the next three months, the next six months, 0:02:11.560 --> 0:02:14.880 it's probably going to come in essentially where it was 0:02:14.919 --> 0:02:16.880 going to come in before we had the issues in 0:02:16.919 --> 0:02:19.400 the banking sector, So they could really be waiting to 0:02:19.480 --> 0:02:22.040 see how this is going to trickle through and flow 0:02:22.120 --> 0:02:26.079 through the economy. If you go back to where we 0:02:26.080 --> 0:02:28.000 were just a couple of months ago, remember we'd had 0:02:28.040 --> 0:02:31.200 some months of softer core inflation prints, the FED was 0:02:31.240 --> 0:02:33.760 sounding a bit more dovish. Well, then you basically had 0:02:33.800 --> 0:02:36.360 one month of data, you had a strong January, and 0:02:36.560 --> 0:02:38.679 you had some revisions to the prior inflation data, and 0:02:38.720 --> 0:02:40.240 all of a sudden, you had a more hawkish FED. 0:02:40.240 --> 0:02:41.480 So we're trying to keep that in mind when we 0:02:41.480 --> 0:02:44.760 think about the FED here that the volatility that we 0:02:44.800 --> 0:02:47.040 saw in two year yields over the last couple of weeks, 0:02:47.320 --> 0:02:49.200 it makes some sense if you think that they were 0:02:49.200 --> 0:02:52.000 really moving between these two extremes where could be financial 0:02:52.000 --> 0:02:54.320 stability that would be more dovish or it could be 0:02:54.400 --> 0:02:56.480 price stability, and I think that really does mean that 0:02:56.840 --> 0:02:58.519 policy rates still need to get above five and a 0:02:58.520 --> 0:03:01.399 half percent. I love getting notes over the past two weeks. 0:03:01.480 --> 0:03:03.840 I've loved it even more because I feel this exasperation 0:03:04.240 --> 0:03:07.120 as people basically say rate cuts, everything is over, and 0:03:07.160 --> 0:03:09.480 you're just like, stop it, guys, please stop it. Things, 0:03:09.520 --> 0:03:11.800 how are still hot? We still have an inflation problem. 0:03:12.120 --> 0:03:13.639 What kind of feedback do you get every time we 0:03:13.639 --> 0:03:16.320 point of these out? Yeah, so it's interesting. I think 0:03:16.320 --> 0:03:21.200 we actually get a lot of resonance on this idea 0:03:21.360 --> 0:03:25.160 that inflation is still strong and underlying inflation is still strong. 0:03:25.520 --> 0:03:28.560 And where there's more of a question from clients is 0:03:29.560 --> 0:03:32.280 does the FED have the ability to respond to that 0:03:32.360 --> 0:03:35.160 strong inflation and do they have the willingness to do it, 0:03:35.160 --> 0:03:37.000 which which is a really important question for the FED, 0:03:37.000 --> 0:03:38.680 and I think a question that the FED should be 0:03:38.680 --> 0:03:42.680 aware people are asking, because one of the key things 0:03:42.760 --> 0:03:44.680 you want to do as a central bank is to 0:03:44.720 --> 0:03:47.680 provide that confidence that you have resolved to fight against 0:03:47.760 --> 0:03:50.960 higher inflation. I think the market really got there a 0:03:51.000 --> 0:03:53.280 month ago or so we had two yar yields above 0:03:53.320 --> 0:03:56.480 five percent. Now there are new questions about whether the 0:03:56.480 --> 0:04:00.320 Fed is going to essentially have to give a little 0:04:00.320 --> 0:04:02.680 bit on the price stability mandate to focus on the 0:04:02.680 --> 0:04:07.400 financial stability mandate. That could be problematic if we start 0:04:07.400 --> 0:04:10.040 to view central banks is unwilling to move against inflation. 0:04:10.120 --> 0:04:12.520 How high could ten year yields go if the Fed 0:04:12.600 --> 0:04:17.040 does pause despite hotter than expected CPI, PC all of 0:04:17.040 --> 0:04:19.360 the data indicators that we had been watching before the 0:04:19.400 --> 0:04:22.400 financial stability questions. Yeah, it's really interesting. We've been thinking 0:04:22.400 --> 0:04:26.080 about interest rates rising because policy rates are rising, but 0:04:26.120 --> 0:04:28.840 there's this other scenario where policy rates could actually stay 0:04:28.839 --> 0:04:31.560 lower and you could start to get longer term rates rising. 0:04:31.720 --> 0:04:34.240 I think FED officials are feeling pretty confident about that 0:04:34.360 --> 0:04:37.200 right now because if you look at longer term expectations 0:04:37.200 --> 0:04:40.400 of inflation in the market five year forward, five year 0:04:40.440 --> 0:04:45.080 inflation break events, well those have stayed relatively stable, relatively 0:04:45.080 --> 0:04:48.720 consistent with mandate consistent policy levels. But I think that's 0:04:48.720 --> 0:04:51.320 what they'll be watching. If that starts gliding up. If 0:04:51.320 --> 0:04:53.960 you start saying higher tenure yields because the Fed is 0:04:54.000 --> 0:04:57.080 being dovish, that would be a real concern for Fed officials. 0:04:57.160 --> 0:04:58.839 We've said a few times they're in the risk management 0:04:58.839 --> 0:05:02.240 business might say, they may decide are they going to 0:05:02.320 --> 0:05:04.320 have enough information to make the code to hike by 0:05:04.360 --> 0:05:06.960 the time I get to my third I think it's 0:05:06.960 --> 0:05:09.559 going to be a difficult meeting. I think they will 0:05:09.640 --> 0:05:12.880 have enough information to continue hiking at that meeting. The 0:05:13.000 --> 0:05:16.800 question is what guidance are they're giving beyond that. And 0:05:16.960 --> 0:05:19.559 we saw what happened with the dots at the last 0:05:19.600 --> 0:05:23.679 meeting a week ago, those dots that indicate where policy 0:05:23.720 --> 0:05:25.680 rates should be at the end of the year. I 0:05:25.720 --> 0:05:28.000 think there's no question they were going to move up 0:05:28.000 --> 0:05:30.080 at that meeting until you had the issue in the 0:05:30.080 --> 0:05:33.200 banking sector. So now the question we're asking about May's, well, 0:05:33.200 --> 0:05:34.720 they don't have to update those dots, but they have 0:05:34.760 --> 0:05:36.920 to give us some indication of will there be further 0:05:37.040 --> 0:05:39.360 rate hikes or will there not be further rate hikes. 0:05:39.640 --> 0:05:41.719 I don't know that you can do again what Central 0:05:41.760 --> 0:05:43.400 banks did a week or two weeks ago. If you 0:05:43.440 --> 0:05:46.120 remember the ECB hiking by fifty basis points and basically 0:05:46.160 --> 0:05:48.000 saying we can't tell you where we go from here. 0:05:48.160 --> 0:05:50.840 I think in May, at that time there'll be enough 0:05:50.839 --> 0:05:53.599 time to view the data, understand what's going on with 0:05:53.600 --> 0:05:57.000 financial stability, give some guidance will there be further rate 0:05:57.040 --> 0:05:59.280 hikes or will there not be further rate hikes. They'll 0:05:59.279 --> 0:06:00.640 have to make a decision. Well, the new line, I 0:06:00.680 --> 0:06:04.880 think is additional policy, firming additional policy from whatever whatever 0:06:04.920 --> 0:06:06.800 that means. I'm sure they spent a long time coming 0:06:06.880 --> 0:06:10.040 up with that. Clearly they believe that what's developed in 0:06:10.080 --> 0:06:13.240 the banking system is a substitute for rate hikes. And 0:06:13.279 --> 0:06:15.159 to your point about the dot plot, I think we 0:06:15.160 --> 0:06:17.400 can probably agree around the table that if we got 0:06:17.440 --> 0:06:19.560 the dot plot three weeks ago, that was going from 0:06:19.600 --> 0:06:22.000 five point one to five to sixty. So let's say 0:06:22.000 --> 0:06:23.880 they believe the development to the last couple of weeks 0:06:23.880 --> 0:06:26.479 are worth about fifty basis points. I've got no idea 0:06:26.520 --> 0:06:28.880 how much conviction they've got behind that view, or whether 0:06:28.920 --> 0:06:30.200 that really is their view, But I think we can 0:06:30.200 --> 0:06:32.560 read between the lines. Andrew, how on earth do you 0:06:32.600 --> 0:06:36.080 make an estimate as to how much the tightening of 0:06:36.200 --> 0:06:38.400 lending standards may develop off the back of the story 0:06:38.440 --> 0:06:40.760 the last couple of weeks and have had equates with 0:06:40.839 --> 0:06:42.880 a level in FED funds. Yeah, I think it's really 0:06:42.880 --> 0:06:46.560 really difficult, and I worry a little bit about these 0:06:46.600 --> 0:06:49.920 statements that the tightening and credit conditions it's going to 0:06:49.960 --> 0:06:53.000 substitute for exactly twenty five or exactly fifty basiness point 0:06:53.000 --> 0:06:56.560 of rate hikes, because you're making an assumption first about 0:06:56.680 --> 0:07:00.600 how policy rates transmit through the financial conditions broadly, and 0:07:00.640 --> 0:07:04.240 then how financial conditions broadly transmit through to the real economy, 0:07:04.520 --> 0:07:07.520 and think about what's happened here. There's all this talk 0:07:07.560 --> 0:07:12.600 about substituting for rate hikes. Well, we were pricing policy 0:07:12.680 --> 0:07:14.480 rates to go above five and a half percent. We 0:07:14.480 --> 0:07:17.360 had two year yields above five percent. Now we have 0:07:17.360 --> 0:07:20.440 two year yields around four percent, one hundred bases points lower. 0:07:20.880 --> 0:07:24.200 So do we think the tightening of credit conditions substitutes 0:07:24.240 --> 0:07:27.480 for one hundred bases point lower two year treasury yield 0:07:27.480 --> 0:07:30.560 because that's what's happened in the market. If we don't, 0:07:30.640 --> 0:07:34.120 then essentially what markets are pricing is the FED to 0:07:34.960 --> 0:07:38.000 fully offset or more than offset the tightening that we've 0:07:38.000 --> 0:07:40.800 had in credit conditions. And that's really an issue for 0:07:40.840 --> 0:07:42.320 the FED if they thought that they had to get 0:07:42.360 --> 0:07:45.240 policy rates above five and a half percent, and financial 0:07:45.240 --> 0:07:47.840 conditions are now loosening, so we have credit conditions tightening, 0:07:47.880 --> 0:07:51.120 We have financial conditions loosening. If you saw the housing 0:07:51.200 --> 0:07:55.400 data yesterday and over the last month, every indicator is 0:07:55.440 --> 0:07:57.560 turning up now, so we have a bottom in the 0:07:57.600 --> 0:08:00.560 housing market. It's rising from a bottom. I think that 0:08:00.600 --> 0:08:03.680 should be another concern where you say we were trying 0:08:03.680 --> 0:08:06.760 to slow down this economy. Now the sector that's most 0:08:06.760 --> 0:08:10.120 responsive to interest rates is starting to re accelerate. To 0:08:10.200 --> 0:08:13.840 your point, given where market pricing is now, how vulnerable 0:08:14.240 --> 0:08:16.760 is the infrastructure of a market that's been whipside again 0:08:16.800 --> 0:08:18.640 and again and has a lot of fragilities baked in 0:08:18.800 --> 0:08:23.200 through leverage. How vulnerable is this market to a FED surprise, 0:08:23.280 --> 0:08:26.240 a massive FED surprise that disrupts where things are now. 0:08:26.240 --> 0:08:29.480 I think that's the other real issue for FED officials now, 0:08:29.880 --> 0:08:34.040 especially given the new emphasis on financial stability risks. As 0:08:34.080 --> 0:08:38.120 a central bank, you're always trying to smoothly and incrementally 0:08:38.520 --> 0:08:42.160 guide policy rates, guide market pricing to what you think 0:08:42.240 --> 0:08:46.280 is the right level to be consistent with mandate consistent inflation. 0:08:47.000 --> 0:08:49.360 And the issue for the FED now is we have 0:08:49.400 --> 0:08:52.320 this huge disconnect between where the dots are and where 0:08:52.360 --> 0:08:56.520 the market is. Like we were just talking about, if anything, 0:08:56.520 --> 0:08:58.559 FED officials maybe wanted to go a bit higher than that. 0:08:58.640 --> 0:09:01.040 If we start seeing the inflation to come and strong again, 0:09:01.080 --> 0:09:02.800 and we think we will over the next few months, 0:09:03.200 --> 0:09:04.559 all of a sudden we could be back in this 0:09:04.640 --> 0:09:06.559 world with FEDE officials think the policy raising needs to 0:09:06.559 --> 0:09:09.120 be much higher. And then can you get there in 0:09:09.160 --> 0:09:11.480 an incremental and smooth way or does this become a 0:09:11.559 --> 0:09:13.800 more violent adjustment? And again, I mean, look look at 0:09:13.840 --> 0:09:15.800 the volatility we signed to your yields. I mean, in 0:09:15.840 --> 0:09:18.559 some ways that's reflecting the fact that we could very 0:09:18.600 --> 0:09:20.280 quickly replace what the FED is going to do if 0:09:20.280 --> 0:09:22.280 they're in a massive bind right now. I think once 0:09:22.320 --> 0:09:24.200 you get in the business of acknowledging that you think 0:09:24.240 --> 0:09:25.920 the developments of the last couple of weeks or a 0:09:25.920 --> 0:09:29.480 substitute for rate hikes if they get worse. I just 0:09:29.600 --> 0:09:32.319 wonder how you can keep saying that we're going to 0:09:32.360 --> 0:09:34.679 get no rate cuts this year, because if you believe 0:09:34.679 --> 0:09:36.800 they're a substitute and we're very close to what you've 0:09:36.960 --> 0:09:40.160 indicated as terminal, then ultimately you should be pulling back 0:09:40.200 --> 0:09:51.559 if things get worse with us now in place to 0:09:51.559 --> 0:09:54.000 say is Peter Ship they head a Mactrice strategy at 0:09:54.000 --> 0:09:57.720 Academy Securities. Let's talk about this equity market. The Nastack 0:09:58.240 --> 0:10:00.640 rip it from a descemberow what more than twenty percent? 0:10:01.120 --> 0:10:04.320 Whiley of black Rock said earlier on this week that 0:10:04.400 --> 0:10:06.960 this market believes we're going back to the old playbook, 0:10:07.320 --> 0:10:10.240 right cuts get along the Nastack, she says, we're not 0:10:10.280 --> 0:10:12.520 going back to the old playbook. Pete, what do you say? 0:10:13.480 --> 0:10:15.520 I would agree with that. I think the NASDAC rally 0:10:15.559 --> 0:10:17.559 is a bit overdone. People are expecting the same sort 0:10:17.600 --> 0:10:20.200 of performance we saw post COVID, and I think the 0:10:20.240 --> 0:10:22.680 conditions are just very different. It's not a supporter for 0:10:22.760 --> 0:10:24.520 that as a whole, though. I think we wanted to 0:10:24.640 --> 0:10:27.520 range trade this equity market. Right as things start getting good, 0:10:27.760 --> 0:10:30.120 the fat comes more into play, and as things deteriorate, 0:10:30.280 --> 0:10:32.800 the fat comes into play the other direction. So, Pete, 0:10:32.840 --> 0:10:35.200 that range at the moment, at least since November has 0:10:35.240 --> 0:10:38.040 been thirty eight hundred to forty two hundred on the SMP. 0:10:38.400 --> 0:10:41.880 Is that the range of sticks? Yeah? I think so. 0:10:42.040 --> 0:10:44.760 I'm certainly now fading this rally in the SMP. I'm 0:10:44.760 --> 0:10:46.560 fading it more through the NASTAC just because I think 0:10:46.559 --> 0:10:48.839 the old performance there has been greater, and I don't 0:10:48.880 --> 0:10:51.120 like the narrative that we return to twenty twenty two. 0:10:51.559 --> 0:10:54.120 The one thing that remains outstanding for me on the banks, 0:10:54.120 --> 0:10:55.840 and I think this is one thing that's different than 0:10:56.280 --> 0:11:00.440 the US versus Europe is people here have alternatives to 0:11:00.480 --> 0:11:03.280 earning more than zero point two percent or whatever bank 0:11:03.320 --> 0:11:06.320 deposit is paying because we've had this gap in rates, 0:11:06.480 --> 0:11:08.160 and I think people are just becoming aware of that. 0:11:08.240 --> 0:11:10.200 So that's what I'm watching to see. If we see 0:11:10.480 --> 0:11:14.040 ongoing deposits leaving the banking system, nothing to do with 0:11:14.080 --> 0:11:16.840 credit concerns and everything to do with what is a 0:11:16.920 --> 0:11:19.480 better yield alternative, And that's not the case in Europe 0:11:19.559 --> 0:11:21.920 yet because they just started their hiking cycle. Do you 0:11:21.960 --> 0:11:25.679 think that this concept of the natural disinflation, the immaculate 0:11:25.720 --> 0:11:29.079 disinflation hasn't gone away and it's almost embedded right now. 0:11:29.080 --> 0:11:30.800 And what we're seeing, which is that the FED has 0:11:30.800 --> 0:11:33.240 an excuse not to hike rates further into cut rates 0:11:33.440 --> 0:11:35.520 and that everything will be just fine and inflation will 0:11:35.600 --> 0:11:39.720 naturally go away. I've been in the camp that we 0:11:39.760 --> 0:11:42.839 are generally headed towards deflation, especially in the goods camp, 0:11:43.000 --> 0:11:45.319 and we had four or five solid months right from 0:11:45.320 --> 0:11:47.679 September of last year till January this year, where you 0:11:47.720 --> 0:11:50.480 saw nothing but deflation. We saw the data bounce a 0:11:50.559 --> 0:11:53.440 little bit. Right now, you look at inventories, they're creeping 0:11:53.520 --> 0:11:56.720 higher again. You start looking at shipments and free they're 0:11:56.760 --> 0:11:59.800 going lower. So I think, on the good side of 0:11:59.840 --> 0:12:02.800 the we're still in an overall deflationary environment. So I 0:12:02.800 --> 0:12:05.720 think that pulls down. I think housing is pulling down. 0:12:06.040 --> 0:12:08.520 Healthcare is something to watch. But yes, I think we 0:12:08.600 --> 0:12:11.559 have overreacted. We have to give this more time, and 0:12:11.600 --> 0:12:14.120 as these companies are pulling back on their jobs, I 0:12:14.120 --> 0:12:16.520 think that just filters through. What we've lost sight of. 0:12:16.600 --> 0:12:19.760 I think is that there is this long and lag 0:12:19.800 --> 0:12:22.400 effect and we're not giving it time. The problem is, 0:12:22.440 --> 0:12:25.600 as market participants, we don't have that time. We're moving 0:12:25.679 --> 0:12:27.360 so quickly. Now you have to be right ahead of 0:12:27.400 --> 0:12:30.720 the time. At what point does the four percent implied 0:12:30.760 --> 0:12:33.920 FED funds rate by January of next year, these things 0:12:34.040 --> 0:12:36.840 enough to reinflate some of those prices that have started 0:12:36.880 --> 0:12:39.760 to come down, you know right now. That's why the 0:12:39.760 --> 0:12:42.160 one thing I'm betting on is that either they can't 0:12:42.200 --> 0:12:44.320 hike as much as people are pricing in but I 0:12:44.360 --> 0:12:47.560 also do not think that we see massive cuts by 0:12:47.559 --> 0:12:49.240 the FAT. I think they're going to try and balance this. 0:12:49.280 --> 0:12:51.440 I think they're going to be very reluctant. I think 0:12:51.440 --> 0:12:54.360 we had a huge unlined of positions, especially in the 0:12:54.360 --> 0:12:57.440 two years, so some of those data, that data and 0:12:57.480 --> 0:13:01.200 how we're looking at what's going on further is just misprice. 0:13:01.360 --> 0:13:05.600 So I would not bet against the bed cutting a lot. Well, Pete, 0:13:06.080 --> 0:13:09.800 as you know, spreads this large aren't resolved by a speech, 0:13:10.360 --> 0:13:13.720 That resolved by incoming information. So can we keep returning 0:13:13.760 --> 0:13:15.880 back to something Lisha and I've been talking about over 0:13:15.880 --> 0:13:18.880 the last couple of weeks, what is the incoming information 0:13:18.920 --> 0:13:22.480 that will resolve that spread? Is it CPI, payrolls, is 0:13:22.520 --> 0:13:25.280 it lending standards? What is it? You know, I think 0:13:25.320 --> 0:13:27.640 it's going to be payrolls in particular, that's the one 0:13:27.720 --> 0:13:30.959 area that we had seen wage inflation take up, it 0:13:31.120 --> 0:13:33.800 was coming back down. Jobs have been probably the single 0:13:33.920 --> 0:13:36.640 strongest thing when for the last six months, at any 0:13:36.679 --> 0:13:38.320 given time, there are two or three things that you 0:13:38.440 --> 0:13:40.559 point to that were weak, and one thing that was 0:13:40.640 --> 0:13:43.640 constantly strong was jobs. So watch out what's happening in jobs. 0:13:43.840 --> 0:13:45.920 A lot of people are still scratching their head. How 0:13:45.960 --> 0:13:47.840 can we get these layouts and they're not showing up 0:13:47.840 --> 0:13:50.040 in the jobs number, So that'd be the one area 0:13:50.080 --> 0:13:51.880 I think if jobs continue, the Fed's going to have 0:13:51.920 --> 0:13:53.760 to hike. If they come back, maybe a little bit 0:13:53.760 --> 0:13:57.439 of reality reflect some of the anecdotal evidence. Maybe that's 0:13:57.480 --> 0:13:59.480 what lets the Fed pause. Do you think the market 0:13:59.520 --> 0:14:01.240 in the maintime for the next month or so, Pete, 0:14:01.320 --> 0:14:04.440 is desensitize somewhat to that data point, because the focus 0:14:04.440 --> 0:14:07.040 overwhelmingly is on bank stocks and what's happening in that sector. 0:14:08.400 --> 0:14:10.240 You know, I think hopefully we can move away a 0:14:10.240 --> 0:14:12.840 little bit from bank stocks. I think that's calming. It's 0:14:12.840 --> 0:14:15.599 all about do they keep deposits given us youel differential, 0:14:15.800 --> 0:14:17.600 and now it's time to start thinking about, Okay, where 0:14:17.640 --> 0:14:20.640 is the economy and what reads do we get as 0:14:20.680 --> 0:14:22.520 we start earnings And again, it's not going to be 0:14:22.560 --> 0:14:24.880 about this sport's earnings. It's going to be what the 0:14:24.960 --> 0:14:28.440 future outlook is, and I think that's very questionable, Pete, 0:14:28.480 --> 0:14:31.960 this was great as always, Peter, chair that of Academy Securities. Peter, 0:14:32.080 --> 0:14:38.880 thank you. Let's get back to the banking system. Joining 0:14:38.920 --> 0:14:41.160 us now after two days of testament on Capitol Hill 0:14:41.200 --> 0:14:45.240 from US regulators. Mara Rodrie gets Valladata's the principal at 0:14:45.400 --> 0:14:48.800 MRV Associates. Mora, let's start here. What did you learn 0:14:49.000 --> 0:14:51.720 over the last couple of days. Well, I think we 0:14:51.880 --> 0:14:55.480 really learned that history matters, and this is what happens 0:14:55.640 --> 0:14:58.760 when we have such a significant decline in history majors 0:14:59.320 --> 0:15:03.760 because people forget things. They forget that basic interest rate, 0:15:04.120 --> 0:15:07.920 risk management, and liquidity measures are at the heart of 0:15:08.000 --> 0:15:10.400 being a bank. So there's certainly going to be some 0:15:10.520 --> 0:15:15.640 changes in terms of supervisory and on site examination processes, 0:15:15.880 --> 0:15:17.960 but there's still a lot we don't know. Where is 0:15:18.680 --> 0:15:21.240 Where is Greg Becker? He needs to be there, he 0:15:21.560 --> 0:15:23.800 is at the end of the day, where the box stops. 0:15:24.280 --> 0:15:26.800 Where were the board members? We haven't heard from any 0:15:26.840 --> 0:15:29.520 of them. They're the ones that are supposed to provide oversight. 0:15:29.880 --> 0:15:33.560 It's not the FED or the California regulators that run 0:15:33.800 --> 0:15:36.600 the bank. So we still are missing from the whole 0:15:37.160 --> 0:15:40.080 range of cast of characters who were really responsible here. 0:15:40.200 --> 0:15:42.320 In the meantime, the bill we've heard is twenty three 0:15:42.360 --> 0:15:46.840 billion dollars at the FDIC incurred and is not taxpayer funded. Bailout. 0:15:46.920 --> 0:15:49.760 It is JP Morgan funded bailout. How much is there 0:15:49.800 --> 0:15:51.800 going to be some sort of consequence to the major 0:15:51.840 --> 0:15:56.600 banks having a special assessment that leaves the FDIC hall right? 0:15:56.680 --> 0:16:00.120 And I can't imagine that JP Morgan City Bank, all 0:16:00.160 --> 0:16:02.560 of the globally systemically important banks in this country are 0:16:02.600 --> 0:16:06.840 happy about this. They are not the problem. They're very 0:16:07.000 --> 0:16:12.000 very liquid, they're very well capitalized, and they certainly don't 0:16:12.040 --> 0:16:15.560 have concentrations of deposits the way that SVB did. And 0:16:15.600 --> 0:16:17.800 then the other regional banks are certainly going to take 0:16:17.840 --> 0:16:20.280 a hit. I don't believe the community banks will. I 0:16:20.280 --> 0:16:23.320 think there's absolutely no political will on either side of 0:16:23.360 --> 0:16:25.800 the aisle to hit the community banks. But at the 0:16:25.880 --> 0:16:27.520 end of the day, it's going to be the American 0:16:27.560 --> 0:16:31.200 consumer who is going to take a hit, because eventually, 0:16:31.400 --> 0:16:35.080 when premier rise for banks, eventually it gets passed on 0:16:35.480 --> 0:16:38.440 to depositors. So this is not going to be any 0:16:38.480 --> 0:16:41.440 kind of free launch for the regular, ordinary American who 0:16:41.440 --> 0:16:45.200 had nothing to do with svb's horrible mismanagement. You talked 0:16:45.200 --> 0:16:47.960 about history and sort of a lack of history. Majors. 0:16:47.960 --> 0:16:49.920 Greg ip in the Wall Street Journal wrote this column 0:16:49.960 --> 0:16:52.520 about how perhaps This isn't the same kind of two 0:16:52.520 --> 0:16:55.680 thousand and eight financial crisis where it happens all at once, 0:16:55.800 --> 0:16:59.160 and rather it's a slow moving crisis of smaller and 0:16:59.280 --> 0:17:02.080 medium sized banks losing relevance and losing some of their 0:17:02.120 --> 0:17:06.399 pre eminence in markets. Does that resonate with you? Unfortunately 0:17:06.440 --> 0:17:08.680 it does. I think what we're seeing here is that 0:17:08.720 --> 0:17:11.960 you're going to have a wide range of investors, journalists, 0:17:12.080 --> 0:17:15.960 pundits who are now looking, Okay, where's the next trouble spot. 0:17:16.080 --> 0:17:20.320 We have banks that have incredibly large portfolios of souring 0:17:20.480 --> 0:17:25.560 real estate loans. You also have leveraged companies that have 0:17:25.840 --> 0:17:29.760 very little in protection for the lenders. So there are 0:17:29.800 --> 0:17:32.399 some trouble spots there. They've been there all along. But 0:17:32.840 --> 0:17:36.240 with stock prices going up, investors were happy. The minute 0:17:36.240 --> 0:17:37.879 that you have a lot of volatility or you have 0:17:37.920 --> 0:17:42.800 stock prices going down, investors rediscover the religion of good 0:17:43.240 --> 0:17:47.160 due diligence in terms of credit. So I think we're 0:17:47.160 --> 0:17:49.719 going to have a lot of dribs and drabs of 0:17:49.760 --> 0:17:53.680 these kinds of issues. People are now talking about so 0:17:53.760 --> 0:17:58.720 called odd accounting rules or unusual accounting rules. No, those 0:17:58.720 --> 0:18:01.959 have been there all along, So you can move bonds around. 0:18:02.359 --> 0:18:04.720 You can also make all kinds of changes with non 0:18:04.760 --> 0:18:08.080 performing loans and loan loss reserves. So I think every 0:18:08.119 --> 0:18:11.840 time that investors nitpick a bit more or journalists nitpick 0:18:11.880 --> 0:18:13.560 a bit more, they're going to find that there are 0:18:13.560 --> 0:18:17.000 some serious problems that still have not been resolved in 0:18:17.080 --> 0:18:20.960 the world of bank regulation, supervision and accounting. Mario know 0:18:21.040 --> 0:18:23.880 how this works. One week later, an equity market roundy later, 0:18:24.320 --> 0:18:27.320 and the questions, the urgency just kind of dissipates. We've 0:18:27.320 --> 0:18:29.159 seen that over the last week. I mentioned this with 0:18:29.359 --> 0:18:31.399 least a few times. Last week, the big question was 0:18:31.440 --> 0:18:33.960 do we need legistive to change right now? What do 0:18:34.000 --> 0:18:35.239 we need to change? What do you need to do, 0:18:35.320 --> 0:18:37.560 like in the next twenty four hours, what do we 0:18:37.600 --> 0:18:40.760 need to change? I think what we need to change 0:18:41.000 --> 0:18:46.119 is to make sure that regulators, both statewide at at 0:18:46.160 --> 0:18:49.399 a federal level are empowered to do their job. You 0:18:49.480 --> 0:18:52.760 need to remove heads of banks from being at the 0:18:52.880 --> 0:18:55.840 district bank, so try to remove those conflicts of interest. 0:18:56.160 --> 0:18:57.879 And you really need to take this. You need to 0:18:57.960 --> 0:19:01.159 change the structure. You need to empower are both offsite 0:19:01.160 --> 0:19:04.399 and onsite examiners to do their job. The problem is 0:19:04.440 --> 0:19:07.280 that when any one of them steps up and tries 0:19:07.320 --> 0:19:10.400 to tell the truth, right, there's no incentive to do that. 0:19:10.560 --> 0:19:13.040 And you do need to make sure that those banks 0:19:13.040 --> 0:19:17.000 that are one hundred billion and more are properly regulated 0:19:17.040 --> 0:19:19.520 and supervised. You do need to do away with a 0:19:19.640 --> 0:19:25.520 Trump rule e gr RCPA that d designated, or change 0:19:25.600 --> 0:19:28.280 the definition as to what is a systemically important bank, 0:19:28.760 --> 0:19:33.959 because those regional banks, by definition, are very concentrated and 0:19:34.000 --> 0:19:38.040 they are very important in those regions. And hopefully this 0:19:38.119 --> 0:19:41.399 time around, politicians on both sides of the aisle have 0:19:41.600 --> 0:19:45.800 learned the importance of not watering down those regulations. That's 0:19:45.840 --> 0:19:47.760 implied by the very fact that a couple of weekends 0:19:47.760 --> 0:19:50.720 ago they had to use these systemic risk exception for 0:19:50.760 --> 0:19:53.480 these banks. Maria, thank you for joining us. As always. 0:19:53.480 --> 0:20:07.240