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Speaker 1: This is the Bloomberg Surveillance Podcast.

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Speaker 2: I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz.

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Speaker 2: Join us each day for insight from the best and economics, geopolitics,

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Speaker 2: finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple,

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Speaker 2: Spotify and anywhere you get your podcasts, and always on

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Speaker 2: Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App.

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Speaker 2: Joining us now with the shifts of Vita Supermanian head

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Speaker 2: of Equity and Quantitative Strategy at BABA, give me the

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Speaker 2: quant angle on how we lift up well above four thousand.

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Speaker 2: What's the quantitative place we're in right now?

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Speaker 1: It gets us out to a bull market.

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Speaker 3: Yeah, Well, so we looked at a variety of signals,

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Speaker 3: and first of all, narrow breath is not a precursor

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Speaker 3: for doom and gloom. So I just want to get

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Speaker 3: that out.

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Speaker 2: There that Zanne Saunders agrees with that as schwall.

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Speaker 3: Yeah, I think it's it's kind of a false negative.

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Speaker 3: And then when you look at valuations right now, they

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Speaker 3: look high, which is another reason nobody wants to buy stocks.

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Speaker 3: But valuations generally look high when you're in an earnings recession,

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Speaker 3: which we are in right now, and I think that

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Speaker 3: when you look at the equity risk premium for stocks,

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Speaker 3: it could actually go lower. And our call is the

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Speaker 3: riskiest asset class in the world right now is the

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Speaker 3: risk free rate, basically treasuries or the bubble. That's the

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Speaker 3: epicenter of the bubble. Everyone's been buying treasuries and pushing

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Speaker 3: interest rates down to close to zero and now we're

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Speaker 3: working through that. But if we are in this sticky

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Speaker 3: inflationary environment, do you really want to be in cash

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Speaker 3: or bonds? Don't you want to be in stocks that

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Speaker 3: participate in inflation. So that's our call, and I think

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Speaker 3: that stocks are kind of, you know, reviled right now

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Speaker 3: because everybody's worried that we're going into a recession. Think

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Speaker 3: about it, We've been positioning for this recession for like

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Speaker 3: six quarters, right So we're now at a point where

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Speaker 3: the average money manager or individual investor is mostly in defensives,

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Speaker 3: more over weight defensives and cyclicals than we've seen since

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Speaker 3: two thousand and eight. So I feel like this is

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Speaker 3: another setup for a cyclical rally. You know, forty three

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Speaker 3: hundred isn't that far away from where we are today,

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Speaker 3: So we're not being you know, heroes in terms of

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Speaker 3: the cap weighted benchmark. But I do think that you

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Speaker 3: can make money by owning some of these unloved cyclicals

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Speaker 3: that aren't necessarily going to get roiled by you know,

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Speaker 3: what looks to be, you know, not such a bad recession.

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Speaker 3: I mean, our economists are basically forecasting zero point eight

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Speaker 3: percent peak to trough declines and GDP not bad.

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Speaker 4: Not bad. So let's get to it. Let's not bury

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Speaker 4: the lead forty three hundred is not the headline. It's

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Speaker 4: an equal way S and P five hundred calls. It's

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Speaker 4: leaning into cyclicals for the cyclic calls. Just go through

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Speaker 4: what industry groups, industrials, banks. What is it about the

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Speaker 4: cyclic calls right now that you like?

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Speaker 3: What I like about them is that nobody wants to

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Speaker 3: talk about them. That the recession that we're heading into

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Speaker 3: isn't that bad. And we are at a point where

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Speaker 3: cyclical set vectors have actually become higher quality. And I

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Speaker 3: know this sounds crazy to say, but if you look

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Speaker 3: at energy, metals, even financials, right the big global regulated banks,

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Speaker 3: these companies have been forced to get disciplined because they've

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Speaker 3: been starved of capital for a very long time. We've

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Speaker 3: been in a decade where nobody wants to invest in

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Speaker 3: commodities or metals, or mining or banks, and these companies

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Speaker 3: had to basically get discipline figure out how to become

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Speaker 3: self sufficient. And today I would argue that they're higher

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Speaker 3: quality than a lot of these so called secular growth

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Speaker 3: plays that have just had a free ride from cheap

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Speaker 3: capital globalization. Like all of these sort of low quality

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Speaker 3: sources of growth.

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Speaker 5: Let's talk about the other side of that call, especially

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Speaker 5: given the equal weight is going to deliver double the

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Speaker 5: gains of market cap weighted, which I think is fascinating

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Speaker 5: and raises real questions about your tech call. And is

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Speaker 5: it just simply trading sideways allowing this cyclicals to sort

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Speaker 5: of gain and lifting the index, or does that mean

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Speaker 5: that they sell off? I mean, are they basically going

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Speaker 5: to go opposite each other?

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Speaker 3: So I think there's a way that big tech can

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Speaker 3: do all right during this period, and that's if these

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Speaker 3: companies start to shorten their duration risk. And what I

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Speaker 3: mean by this is a lot of these big tech

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Speaker 3: companies offer great growth way out in the future, so

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Speaker 3: they're going to get hurt harder by changes in the

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Speaker 3: cost of capital. What some of these companies are doing

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Speaker 3: is acknowledging that they're too big to grow as quickly,

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Speaker 3: so they're returning cash and shortening their duration. I think

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Speaker 3: that's the way that we can start investing in big

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Speaker 3: tech again, is if we start getting more money upfront.

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Speaker 3: And maybe that doesn't happen for a while. And I

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Speaker 3: know it's heresy to say that some of these companies

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Speaker 3: are going to initiate a dividend. All the growth investors

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Speaker 3: that I talk to are like, what are you talking about.

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Speaker 3: That's unthinkable, But you know, look at a lot of

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Speaker 3: these tech companies in the past that have initiated dividends.

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Speaker 3: They've rallied on the news. I think that this is

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Speaker 3: one of those those themes where as we move forward

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Speaker 3: the market, my trade sideways. Tech companies figure out how

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Speaker 3: to navigate higher inflation, a higher cost of capital. Some

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Speaker 3: of them go away. Some of them already have gone away.

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Speaker 3: Smaller banks I worry about, but big banks I think

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Speaker 3: are still in a very good capital position. So those

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Speaker 3: are some of the things.

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Speaker 2: Because it's a wide netted Bank of America. Are people cautious,

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Speaker 2: so they gloomy? I mean I'm getting back and forth

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Speaker 2: here in the world like the world's coming to an end,

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Speaker 2: We're all going to die versus Well, that's what they're saying.

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Speaker 2: But they're actually long Apple's.

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Speaker 1: Well there, collective Apple.

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Speaker 3: Yeah, I mean they're probably long big tech because it's

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Speaker 3: dangerous not to be in those stocks, and those stocks

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Speaker 3: are seen as defensive. I don't agree. I think those

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Speaker 3: stocks are actually more cyclical. But I will tell you

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Speaker 3: the mood is very gloomy, and I think that bears

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Speaker 3: are just waiting for that downturn. But the one thing

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Speaker 3: that makes me think we're not going to get a

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Speaker 3: downturn is that the question we get most frequently is

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Speaker 3: I have capital, I'd like to put it to work.

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Speaker 3: Should I wait until the debt ceiling is behind us?

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Speaker 3: Or do something now? And if everybody's asking that question,

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Speaker 3: we're probably not going to see some major downdraft. That's

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Speaker 3: our call.

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Speaker 4: You think that some kind of debt agreement does deliver

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Speaker 4: a pretty strong relief rally based on that, well, yeah.

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Speaker 6: I think that.

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Speaker 3: And I think that the reason the market hasn't sold

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Speaker 3: off as much is that there is this sense, even

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Speaker 3: when you listen to the most bearish investors. We all

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Speaker 3: kind of think that they're going to get a deal done, right,

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Speaker 3: I mean, that's the base case, So why bother selling

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Speaker 3: if the base case is resolution?

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Speaker 4: The psychology this moment I find fascinating. If you've made

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Speaker 4: the call already and you're in the market, great. If

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Speaker 4: you're on the sidelines and you're in cash, you're so

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Speaker 4: nervous right now, sevida, because you believe that you're the

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Speaker 4: guy that's going to get sucked in last right, right right,

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Speaker 4: I mean enough, and they're going to smash into the

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Speaker 4: downturn of course.

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Speaker 3: Yeah. Well, here's the thing. If if you look at

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Speaker 3: asset allocations, they're more overweight bonds than stocks that we've

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Speaker 3: seen since O. Wait, so I think that there's less

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Speaker 3: selling pressure. If you look at our own client flows,

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Speaker 3: individual investors have been selling for the past four weeks.

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Speaker 3: We actually saw big spike in outflows that would indicate

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Speaker 3: almost capitulation like levels of selling. So I think that,

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Speaker 3: you know, folks have basically braced themselves for this calendar date,

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Speaker 3: this X date. And it's it's not necessarily.

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Speaker 1: That people loving Savita talking here.

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Speaker 2: I got stock recommendations, I mean, whalen emails good morning, Whalen,

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Speaker 2: thank you for emailing.

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Speaker 1: Whaleen emails in and says, go along.

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Speaker 2: Fender f n d R. It's long Fender emailed in.

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Speaker 2: Tell mom the Bryant Tyler, Bryan and Bryant pinky strat.

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Speaker 1: Five seven hundred dollars.

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Speaker 7: Whal good call.

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Speaker 3: Yeah, we'll ask Sam.

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Speaker 4: Oh Savita thank you this. Yeah, it's a bit of

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Speaker 4: sup reminding the Bank of America. Granikfull Yer of AHF

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Speaker 4: Investments running the following. If the X state really is

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Speaker 4: June one, we're in trouble because there simply may not

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Speaker 4: be enough time to write the deal into legislative language.

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Speaker 4: Then give law makers time to actually read it. If

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Speaker 4: the X state is around June sixth or seventh, there

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Speaker 4: may be time to reach an agreement.

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Speaker 7: TK.

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Speaker 4: Pretty scathing from Greg this morning.

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Speaker 2: Get out the calendar and someone that's known the calendar

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Speaker 2: of Washington for decades and decades, mister Valier briefs this

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Speaker 2: this morning here on May twenty third. I've been calling

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Speaker 2: it next week Tuesday somewhere in the zeitgeist. Last night,

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Speaker 2: Greg Valier, I saw people talking about next week is

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Speaker 2: suddenly upon us?

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Speaker 1: Is it?

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Speaker 8: Yeah, we're getting there. Tom I've been very negative, as

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Speaker 8: you know, but I think that the caps, these spending caps,

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Speaker 8: are really crucial. That Democrats have agreed to spending freeze,

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Speaker 8: that's a big deal. So I think we're not going

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Speaker 8: to defall, however, a big caveat. I don't think they

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Speaker 8: can get it done in time. I think there's going

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Speaker 8: to have to be an extension of a week or

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Speaker 8: two because there's a lot of members in both parties

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Speaker 8: that need to be persuaded. But we're getting there. We're

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Speaker 8: getting a little bit closer.

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Speaker 2: Which can kick down the road is best for Americans?

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Speaker 2: Is it a shorter term one where they fix us

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Speaker 2: in two weeks or do we want it can kick

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Speaker 2: down the road and to say September.

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Speaker 8: You really don't want to go into September tom I

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Speaker 8: think that's going to be annoying to the markets. The

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Speaker 8: longer this thing sits out in the sun, the more

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Speaker 8: it's going to attract flies. So I think that we've

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Speaker 8: got to get something done, and I think it can

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Speaker 8: be done, but there's going to probably have to be

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Speaker 8: a short term extension.

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Speaker 5: It's definitely already annoying to markets and far beyond, and

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Speaker 5: it seems like there's been a shift in rhetoric away

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Speaker 5: from job botting the other side with fiery threats of

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Speaker 5: a default to something of a nature reflecting the fact

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Speaker 5: that nobody wants to have the US default. Is this

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Speaker 5: a political shift on both sides to basically say, look,

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Speaker 5: we're not going to do this, We're not holding the

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Speaker 5: US hostage, We're just trying to negotiate in good faith.

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Speaker 8: Well, I think there's a growing feeling on Capitol Hill

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Speaker 8: this could be a pox on both your houses if

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Speaker 8: we don't get anything. I think the level of discuss

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Speaker 8: toward Congress will increase, if that's possible. So no, I

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Speaker 8: think both sides want to get this done. Both sides

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Speaker 8: genuinely do not want to see that defall. What is

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Speaker 8: annoying to me is that at the very last minute

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Speaker 8: they've brought up revenues. We're going to talk about taxes now.

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Speaker 8: That seems to be an issue that just complicates things.

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Speaker 5: Let's talk about that, especially given the fact that tax

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Speaker 5: receipts tax income this year was so far below what

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Speaker 5: the US was expecting. Part of the reason why the

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Speaker 5: X state perhaps is a bit earlier than other people

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Speaker 5: had been projecting is this because of a lack of

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Speaker 5: investment in the IRS. Is this because of loopholes, Is

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Speaker 5: this because of tax code, or simply because the economy

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Speaker 5: isn't doing as well as people had previously thought.

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Speaker 8: Well, there are a lot of variables, Lisa, and I

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Speaker 8: would say that the one that could snag this whole

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Speaker 8: thing is a proposal to cut back dramatically on the

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Speaker 8: IRS funding, as you mentioned, If they did that, that

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Speaker 8: could drag this thing well into the summer. But I'd

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Speaker 8: say they're there. They probably have at least half of

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Speaker 8: the deal done, so the odds continue to improve slightly

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Speaker 8: that we'll get a deal in a week or two.

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Speaker 5: What happened to all of the intransigent members of both parties,

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Speaker 5: basically the ones on the right who have been saying,

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Speaker 5: we're not going to pass any kind of increase in

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Speaker 5: the debt limit. We're going to mandate all sorts of

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Speaker 5: cutting over our dead bodies. That was sort of the

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Speaker 5: platform that they ran on. And then on the other side,

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Speaker 5: people pushing back on Biden and saying, why are you

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Speaker 5: even negotiating, You're giving in far too much and you're

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Speaker 5: looking weak. How much are you seeing those two sides

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Speaker 5: willing to come to the table and actually vote for

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Speaker 5: a plan that is hashed out between McCarthy and Biden.

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Speaker 8: It's a really good and it's a big wildcard right

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Speaker 8: now that couldn't both parties hold their members. I think

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Speaker 8: McCarthy's done a pretty good job at holding Republicans. I

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Speaker 8: think a lot of Democrats don't want to be seen

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Speaker 8: as contrasting with Joe Biden. So I say, in both parties,

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Speaker 8: there's a resignation that they're going to have to get

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Speaker 8: this done.

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Speaker 1: Okay, Gregor, I want to see gow me here.

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Speaker 2: I was thunderstruck in the early early morning yesterday of

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Speaker 2: the Telegraph of London having is its lead headline, the

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Speaker 2: opbed from the Washington Post on elderly presidents, of course

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Speaker 2: led by President Biden. The study that the Washington Post did,

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Speaker 2: what was the ramifications inside the Beltway of the post

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Speaker 2: study of many older presidents.

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Speaker 8: Well, I think a lot of people think this has

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Speaker 8: been overdone. But we see overnight Hillary Clinton, who is

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Speaker 8: late seventies, saying that, yes, I understand Joe Biden is

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Speaker 8: real old and this could be a liability. You know,

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Speaker 8: it's an issue that is not going to go away.

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Speaker 8: But as I point out to people Donald Trump has

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Speaker 8: a birthday in about a month, he turned seventy seven.

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Speaker 4: Greg, don't you think, though, this is just a way

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Speaker 4: of avoiding the actual elephant in the room. It's not

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Speaker 4: about age, it's about mental acuity. Why don't we actually

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Speaker 4: have that discussion. Not all seventy year olds are created equally,

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Speaker 4: not all eighty year olds are created equally. In fact,

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Speaker 4: I know some ninety year olds who were as sharp

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Speaker 4: as some of the sixty year olds that I know. Greg,

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Speaker 4: why don't we having a proper conversation about this topic?

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Speaker 8: Well, you're right, and you guys mentioned a few minutes ago.

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Speaker 8: Henry Kissinger turns our hundred today and he's still really sharp.

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Speaker 8: So you're absolutely right, John. I think that's the big issue.

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Speaker 8: But it's going to be a blood object used against

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Speaker 8: Joe Biden whenever he says something in articulate, whenever he

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Speaker 8: looks frail. It's an issue He's not going to be

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Speaker 8: able to avoid.

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Speaker 9: Greg.

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Speaker 4: Value of a Jeff Investments, Greg, thank you appreciate itself.

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Speaker 4: Around the trail, let's get to j D from Avacuil.

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Speaker 10: Good morning, good morning.

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Speaker 4: I'll give you two views. Bank of America constructive, JP Morgan,

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Speaker 4: not at all. Why are giving the team right now?

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Speaker 4: Somewhere in between?

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Speaker 10: So think about it. Everything has been in between for

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Speaker 10: the last seven months. Uh, this is one of these times, John,

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Speaker 10: where the signal and the noise are incredibly difficult to

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Speaker 10: pars and that there are times where there just isn't

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Speaker 10: that much information from the price. And what it comes

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Speaker 10: down to is we are waiting to see if one

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Speaker 10: year's worth of incredible, incredible tightening, I mean really historic

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Speaker 10: is going to have the effect, and we're seeing, you know,

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Speaker 10: minor parts of that effect. So for us, essentially, what

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Speaker 10: it comes down to is we do expect a recession

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Speaker 10: to begin sometime in the second half, and for the

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Speaker 10: equity market that means down first and then likely back up.

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Speaker 1: Essentially, here take.

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Speaker 2: The Heymen dynamics of a Hymen recession. It's in your

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Speaker 2: note talking about some real gloom here in the first

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Speaker 2: quarter twenty twenty four, and also his call of dramatically

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Speaker 2: lower inflation getting out there under three percent, and you've

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Speaker 2: got SPX forty one fifty. How are you going to

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Speaker 2: frame equities forward given a Hymen recession and a Hymen disinflation.

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Speaker 10: So that is where actually, when you think about it

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Speaker 10: the long term, which we as investors have been guilty

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Speaker 10: of perhaps not thinking about. Given the fact that these

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Speaker 10: seven most difficult months of sideways actions, the view twenty

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Speaker 10: four and thirty six months out is literally unequivocally positive

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Speaker 10: because of the fact that inflation is likely to fall

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Speaker 10: below three percent sustainably.

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Speaker 5: Have we worked through the stimulus potentially dollars stimulus during COVID.

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Speaker 5: How far are we down in that?

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Speaker 10: So if you look in terms of the excess savings

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Speaker 10: on the part of computer consumers, you're really only about

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Speaker 10: halfway through. And I think that, again is one of

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Speaker 10: these things that we failed to appreciate, is this idea

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Speaker 10: that there was so much money put into the system,

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Speaker 10: both monetary and fiscal, that it's really still working its

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Speaker 10: way through. And then the question is, and this is

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Speaker 10: both given the market action, a glass half empty and

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Speaker 10: a glass half full view. The glass half empty view is,

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Speaker 10: my goodness, if we could have had that banking problems

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Speaker 10: of the last several months in an environment where stimulus

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Speaker 10: is still working through, maybe that's not so good. Glass

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Speaker 10: half full is that the stimulus is so profound that

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Speaker 10: it's going to engineer this adjustment that we've had.

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Speaker 5: This is the tale of two narratives, whatever you want

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Speaker 5: to justify the data with.

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Speaker 7: So how do you.

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Speaker 5: Really work in an environment where you can basically come

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Speaker 5: up with it whatever story you want to You might

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Speaker 5: as well be happy and just go with stocks. Right.

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Speaker 10: Look, we think you need to say invested. We think

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Speaker 10: this is an alpha extraction time and defensive sectors have

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Speaker 10: worked and then they've not worked. AI, as we all know,

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Speaker 10: seems to be the overriding principle right now. We, like

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Speaker 10: others of the last half hour, concerned that there's too

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Speaker 10: much concentration there, and we do think that there is

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Speaker 10: a bit of catch down to do, given the fact

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Speaker 10: that small caps have underperformed the way they have. But

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Speaker 10: you really need to stick to your ding. And the

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Speaker 10: interesting thing about this environment is with rates where they are,

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Speaker 10: if you want to hedge your portfolio, it's extremely cost

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Speaker 10: efficient to do so.

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Speaker 4: I've heard that before. So let's pick up on that

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Speaker 4: point in just a moment. I just want to finish

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Speaker 4: on the poor breath point. It's poor breath actually any

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Speaker 4: indication of how much oxygen is left in a rally,

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Speaker 4: because I feel like people complained about the breadth that

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Speaker 4: is stock market and the ball market of the last

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Speaker 4: ten years, and it carried on why can't this continue?

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Speaker 10: Well, look, so it can continue provided that we get

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Speaker 10: that sort of glide path in terms of the stimulus

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Speaker 10: that we were talking about a few minutes to go

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Speaker 10: wearing off. It's just our view that first of all,

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Speaker 10: this whole rate cut talk forget about it. Sure they're not.

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Speaker 10: So there is some repricing in our view that needs

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Speaker 10: to occur based on that misperception.

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Speaker 4: That the market happened in that Judy, and I think

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Speaker 4: what's interesting for me is that we've repriced yields ower

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Speaker 4: at the front end, taken back some of those rate cuts,

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Speaker 4: and this Nastak's still fine. So can you explain to

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Speaker 4: me what the relationship is between what's developing in the

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Speaker 4: bond market and what's happening in stocks.

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Speaker 10: So the relationship is again this question of the time

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Speaker 10: before the recession. Remember we've had a lot of excitement

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Speaker 10: around AI in these last two or three months, and

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Speaker 10: what investors are sort of harping back to is the

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Speaker 10: nineteen ninety eight yield curve inversion. I saw something this

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Speaker 10: morning that said, best start to the Nasdaq since nineteen

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Speaker 10: ninety eight. Well, two things happen. First, you had a

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Speaker 10: roaring bear market in nineteen ninety eight, and then if

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Speaker 10: you got defensive, you gave up three hundred percent gains

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Speaker 10: and then over the next year and a half. So

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Speaker 10: that's the conundrum that people face, and they don't want

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Speaker 10: to let go, and that's perhaps the right decision.

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Speaker 2: Your shop is going to do the most eagerly anticipated

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Speaker 2: daily call in about ten minutes with mister Hymen. I

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Speaker 2: want you to call us here. The message from your

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Speaker 2: shop to people in cash scared stiff.

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Speaker 10: So the message is is that it's okay to be

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Speaker 10: in cash for now, but if you're thinking long term,

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Speaker 10: you need to be prepared for that time where you

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Speaker 10: need to shift assets. But that isn't coming until we

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Speaker 10: get inflation sustainably lower, which again the path to get

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Speaker 10: there is through an economic slowdown.

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Speaker 4: Jillian, final question, you touched on it. I just want

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Speaker 4: to squeeze it in optionality, do you want to hedge

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Speaker 4: to the upside to the downside? Where do you want

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Speaker 4: to take advantage of we things a christ at the moment?

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Speaker 10: Well, that actually comes down to you know, one's own

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Speaker 10: portfolio prep look at your portfolio, think about how you feel.

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Speaker 10: And we always say for the retail investor is when

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Speaker 10: the market's going here, and we do think you're at

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Speaker 10: the upper end of the range here. We don't think

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Speaker 10: this is a breakout. But if you have FOMO options

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Speaker 10: are cheap enough that you can buy upside in themes.

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Speaker 10: Like the rest of the world, we actually prefer portfolio

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Speaker 10: hedges with the S and P five hundred, where you

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Speaker 10: can sell upside to finance downside. And it's very as

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Speaker 10: I said.

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Speaker 4: Costa, there we go, brilliant, Jenny, and that was wonderful.

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Speaker 4: Thank you, sir. Do you want to talk about it tests?

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Speaker 4: I think I want to take a pass pass in

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Speaker 4: the money what I've ever called.

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Speaker 2: Torsten Slock joins, the chief economist that Apollo Global Management, Torston,

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Speaker 2: I want to get to your spectacular chart today, which

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Speaker 2: is lit up on Twitter right now. But I got

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Speaker 2: to follow up on Lisa's note there on non farm payrolls.

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Speaker 2: I'm gonna give you a should phrase, where should non

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Speaker 2: firm payrolls be?

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Speaker 11: Well, given that during the pandemic that was thrown five

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Speaker 11: trillion fiscal stibulus on the economy and five trillion fit

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Speaker 11: balance sheet expansion. It's not a surprise that when you

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Speaker 11: throw ten trillion at a roughly twenty trillion dollar economy,

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Speaker 11: drawing that out of the economy is taking time. So

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Speaker 11: that's why, in some sense it's not surprising that it's

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Speaker 11: taking time to get all this liquidity back, and therefore

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Speaker 11: that is taking time to get household saving strong down,

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Speaker 11: to get corporate saving strong down, and therefore, to your question,

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Speaker 11: to get non found payrose to really slow meaningfully, we

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Speaker 11: just need to go through a period before we get

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Speaker 11: that slow down that we have.

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Speaker 2: So let's double barrel. You've got non firm payrolls coming

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Speaker 2: down at some point. Your spectacular chart today shows the

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Speaker 2: miscall of recession, doom and gloom, drawing it out, drawing

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Speaker 2: it out, folks. I'll put it on Twitter here when

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Speaker 2: I can. Let's dovetail those together to get to where

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Speaker 2: you think we're going to get. Is it just a

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Speaker 2: smooth linear progression or is it going to be either

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Speaker 2: a jump condition or even more brutal discontinuous.

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Speaker 1: What's it going to be?

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Speaker 11: This is absolutely critical because before when the FIT was

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Speaker 11: just hiking rates twenty five basis points, they were looking

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Speaker 11: around saying how is the economy doing? Okay, we go

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Speaker 11: another twenty five and once we get through that process,

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Speaker 11: that was all very smooth and gradual. But the challenge

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Speaker 11: is that we have now over the last few months,

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Speaker 11: added a banking crisis and tighter credit conditions, and a

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00:22:16,880 --> 00:22:20,720
Speaker 11: banking situation where banks are seeing much less demand for

437
00:22:20,840 --> 00:22:24,000
Speaker 11: commercial real estate loans, must less demand for c any loans.

438
00:22:24,280 --> 00:22:26,679
Speaker 11: Those indicate us are now at two thousand and eight levels.

439
00:22:27,000 --> 00:22:29,200
Speaker 11: Those things raise the risk exactly as you're saying, Tom,

440
00:22:29,200 --> 00:22:31,920
Speaker 11: that we may have that nonlinear slowdown over the coming

441
00:22:32,000 --> 00:22:36,840
Speaker 11: quarters where tighter credit conditions may be accelerating the slowdown

442
00:22:36,880 --> 00:22:37,520
Speaker 11: in the economy.

443
00:22:37,600 --> 00:22:40,600
Speaker 5: This is the key debate. Is this recession delayed or

444
00:22:40,760 --> 00:22:44,440
Speaker 5: recession interrupted? And we're looking at data and is there

445
00:22:44,440 --> 00:22:46,520
Speaker 5: anything to give us any indication ahead of it or

446
00:22:46,520 --> 00:22:48,040
Speaker 5: do we just have to wait and see what mystery

447
00:22:48,080 --> 00:22:48,840
Speaker 5: box awaits us?

448
00:22:48,960 --> 00:22:51,320
Speaker 11: Absolutely, because the challenge is if we threw central in

449
00:22:51,359 --> 00:22:53,720
Speaker 11: at the economy, sucking that out again is going to

450
00:22:53,720 --> 00:22:55,679
Speaker 11: take time, and how do I weigh that in my

451
00:22:55,800 --> 00:22:58,440
Speaker 11: concitative model purpose of the US economy. We're on the

452
00:22:58,480 --> 00:23:01,240
Speaker 11: one hand, we had huge stimulus that's still stimulating and

453
00:23:01,280 --> 00:23:02,920
Speaker 11: at the same time, the FED is trying to slow

454
00:23:02,960 --> 00:23:05,800
Speaker 11: things down, and we have tieder credit conditions. So the

455
00:23:05,840 --> 00:23:07,919
Speaker 11: market thought, and that's what the chart is showing today,

456
00:23:08,119 --> 00:23:10,840
Speaker 11: that the recession would have come like six months ago,

457
00:23:10,920 --> 00:23:12,800
Speaker 11: but now it's taking a longer time to take that

458
00:23:12,840 --> 00:23:15,040
Speaker 11: tentrillion out. But what we do know is that the

459
00:23:15,080 --> 00:23:17,440
Speaker 11: FED is very very keen on getting inflation down from

460
00:23:17,440 --> 00:23:20,160
Speaker 11: five percent to two percent, and as long as that's

461
00:23:20,200 --> 00:23:22,640
Speaker 11: the case, the FED will continue to step on the brakes.

462
00:23:22,640 --> 00:23:24,879
Speaker 11: The FED will continue to slow down earnings growth, and

463
00:23:24,920 --> 00:23:26,520
Speaker 11: the FED will continue to slow down hiring.

464
00:23:26,920 --> 00:23:29,320
Speaker 5: There's been this sort of conundrum baked into the market

465
00:23:29,480 --> 00:23:32,159
Speaker 5: where certainly people are rethinking whether there was actually a

466
00:23:32,160 --> 00:23:35,240
Speaker 5: banking crisis, perhaps taking that away from the equation a bit,

467
00:23:35,560 --> 00:23:37,680
Speaker 5: and you're seeing yields creep higher, and it hasn't really

468
00:23:37,760 --> 00:23:40,000
Speaker 5: taken a bike at a bite out of tech valuations.

469
00:23:40,040 --> 00:23:42,720
Speaker 5: Do you think that there really has been an economic

470
00:23:42,880 --> 00:23:47,000
Speaker 5: sea change resulting on artificial intelligence, resulting from some of

471
00:23:47,040 --> 00:23:51,119
Speaker 5: the shifts in allocations of people's pocketbooks.

472
00:23:51,280 --> 00:23:52,800
Speaker 7: I do think that very importantly.

473
00:23:52,840 --> 00:23:55,240
Speaker 11: First of all, inflation is still way too high red

474
00:23:55,280 --> 00:23:57,640
Speaker 11: to to the fed's target. So importantly, the FED will

475
00:23:57,640 --> 00:24:00,199
Speaker 11: look at inflation at five and say we have to

476
00:24:00,280 --> 00:24:02,679
Speaker 11: do more to get inflation at least key rates at

477
00:24:02,720 --> 00:24:04,920
Speaker 11: these levels for a longer time, to get inflation down.

478
00:24:04,920 --> 00:24:07,040
Speaker 11: And there are two reasons for that. Namely, first of all,

479
00:24:07,320 --> 00:24:09,919
Speaker 11: housing is beginning to recover. That's putting up where pressure

480
00:24:09,960 --> 00:24:11,800
Speaker 11: and housing as usual makes up forty percent of the

481
00:24:11,840 --> 00:24:15,360
Speaker 11: CPI basket, so that's lifting potentially inflation down the road.

482
00:24:15,600 --> 00:24:17,680
Speaker 11: And the other thing is also that wage inflation is

483
00:24:17,720 --> 00:24:20,639
Speaker 11: also coming down too slowly. In other words, ways average

484
00:24:20,640 --> 00:24:22,679
Speaker 11: our learnings that four and a half percent is not

485
00:24:22,800 --> 00:24:25,000
Speaker 11: close to the two three percent week before the pandemic.

486
00:24:25,040 --> 00:24:27,040
Speaker 11: So that raises the risk to your question, Lisa, that

487
00:24:27,119 --> 00:24:29,600
Speaker 11: inflation will be sticky. And if invation is sticky, that

488
00:24:29,640 --> 00:24:31,720
Speaker 11: does mean that tech and growth and venture capsal and

489
00:24:31,760 --> 00:24:35,119
Speaker 11: particular growth. You mean, if it's trying to slow down growth,

490
00:24:35,480 --> 00:24:37,240
Speaker 11: that should mean that growth should not be performing.

491
00:24:37,240 --> 00:24:38,400
Speaker 7: Well, you're right, tech cute.

492
00:24:38,480 --> 00:24:43,160
Speaker 2: David Rosenberg publishes moments ago out of Toronto and Sticky Inflation,

493
00:24:43,680 --> 00:24:45,800
Speaker 2: and he goes all Newtonian on us, and he looks

494
00:24:45,840 --> 00:24:49,320
Speaker 2: at first and second derivative, what's the derivative right now

495
00:24:49,400 --> 00:24:53,320
Speaker 2: of the disinflation that we're seeing and at what level

496
00:24:53,359 --> 00:24:55,240
Speaker 2: do you have to get We're at where you've got

497
00:24:55,320 --> 00:24:58,800
Speaker 2: legit second derivative convexity down to a lower level.

498
00:24:58,880 --> 00:25:01,159
Speaker 11: Yeah, there are two problems inflation and will get the

499
00:25:01,200 --> 00:25:03,200
Speaker 11: new numbers on PCE, but that will just be the

500
00:25:03,280 --> 00:25:05,320
Speaker 11: rivetive of the CPI we just got. But the problem

501
00:25:05,359 --> 00:25:07,760
Speaker 11: is infasion is at five and five is not two,

502
00:25:08,119 --> 00:25:11,359
Speaker 11: and most importantly live is not four. It's not four either,

503
00:25:11,440 --> 00:25:13,720
Speaker 11: and therefore five is not even moving down to two.

504
00:25:13,840 --> 00:25:15,520
Speaker 11: If you look at the six months change, the three

505
00:25:15,520 --> 00:25:18,040
Speaker 11: months change, the twelve months change in core CPI, it's

506
00:25:18,040 --> 00:25:21,160
Speaker 11: still moving sideways. So yes, it is true to say

507
00:25:21,160 --> 00:25:23,520
Speaker 11: that maybe owners cull and rent and housing inflation could

508
00:25:23,520 --> 00:25:26,240
Speaker 11: be coming down eventually. But with a lot of indicators

509
00:25:26,240 --> 00:25:29,280
Speaker 11: in housing, traffic of perspective, buyers is going up, existing

510
00:25:29,320 --> 00:25:31,159
Speaker 11: home sales is going up, new homes is going up,

511
00:25:31,440 --> 00:25:33,720
Speaker 11: home buyer confidence and hope builder confidence is going up.

512
00:25:33,720 --> 00:25:36,080
Speaker 11: Even number bits per home has also been going up.

513
00:25:36,119 --> 00:25:38,439
Speaker 11: So that's all telling you that if CPI, in particular

514
00:25:38,520 --> 00:25:40,920
Speaker 11: the housing component starts to go up, inflation will indeed

515
00:25:40,920 --> 00:25:41,840
Speaker 11: turn out to be more sticky.

516
00:25:42,040 --> 00:25:44,240
Speaker 2: Listen and I hang on every word. You publisher could

517
00:25:44,280 --> 00:25:47,040
Speaker 2: kill us, but we hang on it. And one answers.

518
00:25:47,119 --> 00:25:51,240
Speaker 2: Mortgage rates back up six point x percent suddenly six days,

519
00:25:51,240 --> 00:25:54,000
Speaker 2: seven days, eight days worth seven point zero four percent

520
00:25:54,280 --> 00:25:57,800
Speaker 2: thirty year bank rate this time with mortgage rates going up.

521
00:25:57,840 --> 00:25:58,360
Speaker 1: What's it mean?

522
00:25:58,880 --> 00:26:00,919
Speaker 11: So at this point is not only mortgage rates that

523
00:26:00,960 --> 00:26:03,600
Speaker 11: have been driving the housing markets also that jobs have

524
00:26:03,680 --> 00:26:06,040
Speaker 11: still been strong and wage growth has still been strong.

525
00:26:06,080 --> 00:26:09,040
Speaker 11: So on the scale here that has clearly been dominating

526
00:26:09,119 --> 00:26:10,879
Speaker 11: what has been happening to mortgage rates, and that's why

527
00:26:11,000 --> 00:26:12,880
Speaker 11: housing has started to show a recovery.

528
00:26:12,920 --> 00:26:14,960
Speaker 7: The fact that they are more bits per home.

529
00:26:14,840 --> 00:26:17,080
Speaker 11: Sold now than there were six months ago is just

530
00:26:17,080 --> 00:26:19,280
Speaker 11: stunning when you think about where morgage rates are. So

531
00:26:19,320 --> 00:26:21,240
Speaker 11: that means that we will get to that infliction point,

532
00:26:21,480 --> 00:26:24,200
Speaker 11: and through earlier discussion, where we might get that sharper

533
00:26:24,240 --> 00:26:25,360
Speaker 11: slope down where it no.

534
00:26:25,359 --> 00:26:27,440
Speaker 1: Longer be be like what Friday or Monday.

535
00:26:27,520 --> 00:26:29,240
Speaker 11: Oh no, so this may be several months down the

536
00:26:29,280 --> 00:26:32,760
Speaker 11: road because again remember both the banking sector tightening conditions

537
00:26:32,760 --> 00:26:35,359
Speaker 11: and also morgus rates at these levels. Eventually the Fed

538
00:26:35,359 --> 00:26:37,760
Speaker 11: will succeed with getting inflation down, and we should not

539
00:26:37,800 --> 00:26:40,439
Speaker 11: doubt their commitment to getting inflation back to two percent,

540
00:26:40,480 --> 00:26:41,120
Speaker 11: which takes.

541
00:26:41,000 --> 00:26:43,200
Speaker 5: Us back to where we started in a sense. This

542
00:26:43,400 --> 00:26:45,680
Speaker 5: ten trillion dollars of stimulus that was pumped into the

543
00:26:45,760 --> 00:26:49,119
Speaker 5: economy and the uncertainty of where we are in terms

544
00:26:49,200 --> 00:26:51,920
Speaker 5: of breaking it down and pulling it out of the economy.

545
00:26:51,960 --> 00:26:54,200
Speaker 5: Do we have a sense of how much was sucked

546
00:26:54,240 --> 00:26:57,000
Speaker 5: out and how much just keeps getting circulated in terms

547
00:26:57,000 --> 00:26:59,479
Speaker 5: of wages and bigger incomes that go into spending.

548
00:26:59,560 --> 00:27:02,280
Speaker 11: Absolutely, that's a really key question because the only way

549
00:27:02,320 --> 00:27:03,760
Speaker 11: we can really get a good handle of that is

550
00:27:03,760 --> 00:27:05,880
Speaker 11: to try to look at the data for how much

551
00:27:06,080 --> 00:27:08,840
Speaker 11: savings is left across the income distribution.

552
00:27:08,920 --> 00:27:10,240
Speaker 7: The feed has quality data for that.

553
00:27:10,440 --> 00:27:12,480
Speaker 11: Some of the banks, City Bank and Bank of America

554
00:27:12,520 --> 00:27:15,159
Speaker 11: have data that also on the private level. And the

555
00:27:15,160 --> 00:27:18,280
Speaker 11: conclusion is still today you have both for high, middle

556
00:27:18,280 --> 00:27:20,880
Speaker 11: and low income groups, still a higher levels of savings

557
00:27:20,880 --> 00:27:23,320
Speaker 11: at these cash in checking accounts than what you had

558
00:27:23,480 --> 00:27:25,760
Speaker 11: in the fourth quarter of twenty nineteen. So the answer

559
00:27:25,760 --> 00:27:27,600
Speaker 11: to your question is we still need some more time

560
00:27:27,880 --> 00:27:31,080
Speaker 11: before that excess savings has been worked down to a

561
00:27:31,119 --> 00:27:32,880
Speaker 11: lower level, and that's when we also made a little

562
00:27:32,920 --> 00:27:34,960
Speaker 11: begin We've seen you spoke about this Earlier, we've seen

563
00:27:34,960 --> 00:27:37,159
Speaker 11: some of the credit card data showing some signs of weakness.

564
00:27:37,320 --> 00:27:40,160
Speaker 11: You're also seen at Bloomberg Screen restaurant performance in DEX

565
00:27:40,200 --> 00:27:42,040
Speaker 11: also beginning to roll lower a bit. So there are

566
00:27:42,040 --> 00:27:45,200
Speaker 11: some early signs of maybe consumers are beginning to hold back,

567
00:27:45,200 --> 00:27:48,080
Speaker 11: and delinquasy rates also in particular for lower fical scores

568
00:27:48,080 --> 00:27:49,720
Speaker 11: are also beginning to go up. So yes, there's some

569
00:27:49,760 --> 00:27:52,280
Speaker 11: early signs of cracks for the US consumer. But it's

570
00:27:52,320 --> 00:27:55,640
Speaker 11: still exactly the question you're asking. Pretty difficult to get

571
00:27:55,680 --> 00:27:57,879
Speaker 11: an exam firm handle on what is the timing, but

572
00:27:57,960 --> 00:27:59,879
Speaker 11: it is coming. No one should doubt that there is

573
00:28:00,080 --> 00:28:01,040
Speaker 11: ESSI is on the horizon.

574
00:28:01,080 --> 00:28:03,480
Speaker 5: There's a big debate about what caused the inflation. Was

575
00:28:03,520 --> 00:28:06,160
Speaker 5: it this question of some structural changes with people exiting

576
00:28:06,160 --> 00:28:11,399
Speaker 5: the work workplace and just perhaps reglobalization or deglobalization, and

577
00:28:11,440 --> 00:28:15,640
Speaker 5: how much was just modern monetary theory failed that essentially, Yes,

578
00:28:15,720 --> 00:28:18,120
Speaker 5: if you do just print money, you're going to get

579
00:28:18,280 --> 00:28:21,040
Speaker 5: more inflation, and that's essentially what happened. I mean, how

580
00:28:21,119 --> 00:28:22,800
Speaker 5: much can you parse out these two things?

581
00:28:22,880 --> 00:28:23,040
Speaker 7: Yees?

582
00:28:23,119 --> 00:28:25,119
Speaker 11: So if you throw tentrall in that the economy no

583
00:28:25,200 --> 00:28:27,000
Speaker 11: wonder that you get some inflation and if you're at

584
00:28:27,000 --> 00:28:29,440
Speaker 11: the same time lower the capacity of the economy being

585
00:28:29,440 --> 00:28:32,440
Speaker 11: lower the supply side. If capacity starts rinking, you both

586
00:28:32,480 --> 00:28:34,960
Speaker 11: have more demand and you have less supply. That's a

587
00:28:35,000 --> 00:28:37,159
Speaker 11: recipe for inflation going up. So now we're trying to

588
00:28:37,200 --> 00:28:39,960
Speaker 11: balance that by pursuing demand that by hiking rates, and

589
00:28:40,000 --> 00:28:41,840
Speaker 11: supply chains are coming back, so that means supply is

590
00:28:41,880 --> 00:28:44,200
Speaker 11: coming up to get the economy more on balance. So

591
00:28:44,200 --> 00:28:46,040
Speaker 11: that you have talked about this for many years. The

592
00:28:46,080 --> 00:28:48,000
Speaker 11: tailor rule, if I look at my Bloomberg screen says

593
00:28:48,040 --> 00:28:49,760
Speaker 11: the fit funtrates to they should be nine.

594
00:28:50,080 --> 00:28:51,360
Speaker 7: That's obviously not where we are.

595
00:28:51,400 --> 00:28:53,400
Speaker 11: But if we are so far away from the fedscal

596
00:28:53,480 --> 00:28:56,000
Speaker 11: of inflation and unemployment that we still need more to

597
00:28:56,080 --> 00:28:58,120
Speaker 11: do to get to the point where there's more balance

598
00:28:58,120 --> 00:28:59,080
Speaker 11: between supply and demand.

599
00:28:59,480 --> 00:29:03,160
Speaker 2: Chicago's by way of Austria, M two has been a study.

600
00:29:03,520 --> 00:29:08,280
Speaker 2: Most people say, ignore M two doesn't have recent academic validity.

601
00:29:09,000 --> 00:29:12,680
Speaker 1: I'm sorry. M two took off like a moonshot and

602
00:29:12,720 --> 00:29:14,360
Speaker 1: it's cratered. What's it mean?

603
00:29:14,880 --> 00:29:16,720
Speaker 11: So I would look at him too as a reflection

604
00:29:16,840 --> 00:29:19,040
Speaker 11: of the tentrillion that was thrown in terms of accurcate

605
00:29:19,080 --> 00:29:22,320
Speaker 11: demand that came along, and M two is indeed now collapsing,

606
00:29:22,520 --> 00:29:25,040
Speaker 11: but that's because the FET is trying to withdraw Equaly,

607
00:29:25,240 --> 00:29:27,400
Speaker 11: the FED is trying to really slow the economy down,

608
00:29:27,640 --> 00:29:29,440
Speaker 11: and we should in equity and credit mark. It's not

609
00:29:29,520 --> 00:29:31,720
Speaker 11: under estimate the commitment that the FET has to slow

610
00:29:31,760 --> 00:29:34,719
Speaker 11: down earning's growth, slow down hiring. The whole idea from

611
00:29:34,720 --> 00:29:36,960
Speaker 11: the FET is to slow down consumption, slow down cap

612
00:29:36,960 --> 00:29:39,480
Speaker 11: e spending. That's a very very strong commitment to saying

613
00:29:39,720 --> 00:29:42,240
Speaker 11: we need to slow the economy down in order to

614
00:29:42,280 --> 00:29:44,520
Speaker 11: get inflation down from five to two percent, to.

615
00:29:44,520 --> 00:29:45,920
Speaker 5: Put a bow on it. And the follow up on

616
00:29:46,000 --> 00:29:47,840
Speaker 5: what you said with the tailor rule and a possible

617
00:29:47,920 --> 00:29:49,720
Speaker 5: nine percent FED funds rate, which a lot of people

618
00:29:49,760 --> 00:29:53,240
Speaker 5: say is implausible at this moment, how mispriced do you

619
00:29:53,280 --> 00:29:56,760
Speaker 5: think where funds rates should go in order to slow

620
00:29:56,800 --> 00:29:59,760
Speaker 5: this economy to bring out some of this ten trillion dollars.

621
00:29:59,600 --> 00:30:00,360
Speaker 7: Of simil well.

622
00:30:00,360 --> 00:30:02,240
Speaker 11: I think, as Tom was saying, that's exactly the debate

623
00:30:02,280 --> 00:30:03,880
Speaker 11: on the air form C at the moment, some many

624
00:30:03,880 --> 00:30:05,719
Speaker 11: firm C members are saying we no only longer need

625
00:30:05,760 --> 00:30:07,760
Speaker 11: to hike more and others are saying, but wait a minute,

626
00:30:07,760 --> 00:30:09,560
Speaker 11: maybe we do need to hike more, because maybe the

627
00:30:09,560 --> 00:30:12,560
Speaker 11: transmission mechanism is saying that Moyes needed. So I do

628
00:30:12,600 --> 00:30:14,400
Speaker 11: think for sure at least we will need to have

629
00:30:14,520 --> 00:30:17,640
Speaker 11: rates elevated for a lot longer than what markets up pricing.

630
00:30:18,040 --> 00:30:20,800
Speaker 2: The economist James Diamond, I believe that. I believe he

631
00:30:20,880 --> 00:30:23,520
Speaker 2: said he's a little leery on quantitative tiding right now.

632
00:30:23,800 --> 00:30:25,080
Speaker 2: I mean, is that the heart of the matter that

633
00:30:25,200 --> 00:30:26,640
Speaker 2: I is gonna have to blink and lose QT.

634
00:30:27,000 --> 00:30:29,480
Speaker 11: So well, there's a lot of discussion about what is

635
00:30:29,480 --> 00:30:31,880
Speaker 11: the sequencing of how do we actually tighten policy. And

636
00:30:31,920 --> 00:30:34,120
Speaker 11: here at this point, if you think that it is

637
00:30:34,200 --> 00:30:36,840
Speaker 11: needed to get long rates further up to say, cool

638
00:30:36,880 --> 00:30:37,920
Speaker 11: the housing market down.

639
00:30:38,000 --> 00:30:39,080
Speaker 1: You've been driving them up.

640
00:30:39,160 --> 00:30:41,720
Speaker 2: Torston slock Alone's answers to a four to forty two

641
00:30:41,800 --> 00:30:45,520
Speaker 2: year yield and a thirty year bond four or four percent.

642
00:30:45,720 --> 00:30:47,520
Speaker 5: Yeah, I mean this is what we've seen. This grind

643
00:30:47,600 --> 00:30:50,280
Speaker 5: higher as people really rethink because the.

644
00:30:50,240 --> 00:30:52,880
Speaker 11: Recession has been delayed and if this delayed more, well, okay,

645
00:30:52,880 --> 00:30:54,360
Speaker 11: if it's not coming, maybe race do need to go

646
00:30:54,400 --> 00:30:54,840
Speaker 11: up a bit more.

647
00:30:54,840 --> 00:30:56,840
Speaker 2: I get the chart on Twitter it's clearly the chart

648
00:30:56,960 --> 00:31:00,000
Speaker 2: of the day. His Torston sluck of a power global man.

649
00:31:10,560 --> 00:31:12,920
Speaker 4: Fantastic conversation coming up right now with our colleague and

650
00:31:12,920 --> 00:31:15,480
Speaker 4: good friend, Francine Lanquist, sitting down with the CEO of

651
00:31:15,560 --> 00:31:19,400
Speaker 4: Standard Charted at the Qatar Economic Forum. Hello friend, Hi John,

652
00:31:19,440 --> 00:31:19,960
Speaker 4: Thank you so much.

653
00:31:20,000 --> 00:31:22,280
Speaker 9: I am delighted to speak to Bill Winters. We'll talk

654
00:31:22,320 --> 00:31:25,440
Speaker 9: about them ago little least, we'll speak about markets, and

655
00:31:25,480 --> 00:31:27,080
Speaker 9: we'll speak about everything in between.

656
00:31:27,120 --> 00:31:29,040
Speaker 6: Bill Winters, thank you so much.

657
00:31:29,280 --> 00:31:29,800
Speaker 7: Great to be.

658
00:31:29,720 --> 00:31:30,840
Speaker 6: Here for joining us.

659
00:31:31,160 --> 00:31:33,080
Speaker 9: We'll talk about the banks, and we'll talk about potential

660
00:31:33,120 --> 00:31:35,240
Speaker 9: takeovers or not if stand a chart in the second.

661
00:31:35,320 --> 00:31:37,520
Speaker 9: But what do you worry most about the markets? Is

662
00:31:37,560 --> 00:31:40,560
Speaker 9: the debt ceiling? Is it a banking crisis? Is it

663
00:31:40,840 --> 00:31:42,520
Speaker 9: FEDS policy mistakes?

664
00:31:42,680 --> 00:31:45,120
Speaker 12: I mean, right this minute, I'm not worrying about it

665
00:31:45,160 --> 00:31:47,960
Speaker 12: too much because I think things feel actually in a

666
00:31:48,000 --> 00:31:51,600
Speaker 12: reasonable stasis in the world. Of course we're worried about

667
00:31:51,600 --> 00:31:53,840
Speaker 12: the dead ceiling, but I heard the reassuring comments both

668
00:31:53,840 --> 00:31:56,920
Speaker 12: from President Biden and Speak McCarthy yesterday.

669
00:31:57,000 --> 00:31:59,880
Speaker 6: I have to think these guys know what they're playing with.

670
00:32:00,000 --> 00:32:03,000
Speaker 12: So I'm okay that I think this is the structural

671
00:32:03,680 --> 00:32:07,400
Speaker 12: resistance of inflation to come back down. That's the biggest concern,

672
00:32:07,720 --> 00:32:09,640
Speaker 12: not right at this moment, but just as that plays

673
00:32:09,640 --> 00:32:12,400
Speaker 12: out over time. What's economic growth look like.

674
00:32:12,760 --> 00:32:14,840
Speaker 6: I've been very impressed by the resilience in the US,

675
00:32:14,920 --> 00:32:15,600
Speaker 6: in Europe, and.

676
00:32:15,560 --> 00:32:18,200
Speaker 12: Of course this region, the Middle East is booming, Asia

677
00:32:18,240 --> 00:32:21,280
Speaker 12: is booming, India is booming despite higher interest rates.

678
00:32:21,280 --> 00:32:23,320
Speaker 9: So it thinks, feel okay, Well, if you look at

679
00:32:23,320 --> 00:32:25,479
Speaker 9: the debt ceiling, even if we have a resolution, are

680
00:32:25,520 --> 00:32:27,640
Speaker 9: we playing with fire? Does it actually put to the

681
00:32:27,760 --> 00:32:30,600
Speaker 9: US as reserve currency? As I know, leader's free world

682
00:32:30,640 --> 00:32:31,040
Speaker 9: at risk?

683
00:32:31,400 --> 00:32:34,080
Speaker 6: Look, I mean we've been the politicians in Washington have

684
00:32:34,160 --> 00:32:35,080
Speaker 6: been playing with the debt.

685
00:32:34,880 --> 00:32:38,320
Speaker 12: Ceiling for decades and you know, so far there's not

686
00:32:38,360 --> 00:32:41,120
Speaker 12: been an accident. Of course, every time it happens, we wonder,

687
00:32:41,440 --> 00:32:43,640
Speaker 12: you know, given how crazy the politics is in the

688
00:32:43,760 --> 00:32:45,080
Speaker 12: US right now, is this going to be the time?

689
00:32:45,720 --> 00:32:48,360
Speaker 12: But the fact is, the treasury, the treasury markets are

690
00:32:48,400 --> 00:32:51,720
Speaker 12: behaving well. Credit markets are behaving well. So the market

691
00:32:51,760 --> 00:32:53,200
Speaker 12: is not pricing yet a bad outcome here.

692
00:32:53,600 --> 00:32:55,080
Speaker 9: There's a lot of money in the Middle East. Do

693
00:32:55,120 --> 00:32:56,600
Speaker 9: you think they're after a bank like yours?

694
00:32:58,360 --> 00:33:00,880
Speaker 12: Look, I think everybody in the world would love to

695
00:33:00,920 --> 00:33:04,240
Speaker 12: own a piece of standard Charter Bank because it's a

696
00:33:04,280 --> 00:33:04,840
Speaker 12: strong bank.

697
00:33:04,880 --> 00:33:05,440
Speaker 6: We're doing well.

698
00:33:05,440 --> 00:33:07,920
Speaker 12: We've got this super interesting foot train across Asian Middle East,

699
00:33:07,960 --> 00:33:08,800
Speaker 12: in Africa, So.

700
00:33:08,800 --> 00:33:09,400
Speaker 6: You're a takeover.

701
00:33:09,520 --> 00:33:09,960
Speaker 3: We're cheap.

702
00:33:10,520 --> 00:33:11,720
Speaker 6: So we're cheap over target.

703
00:33:12,560 --> 00:33:15,160
Speaker 12: Like I say, if somebody wants to to come and say,

704
00:33:15,200 --> 00:33:16,800
Speaker 12: we can add more value to this bank than what

705
00:33:16,800 --> 00:33:20,320
Speaker 12: you're doing today, where you're drawing at double digit growth rates,

706
00:33:20,320 --> 00:33:24,560
Speaker 12: profits at substantially higher you can have an idea on

707
00:33:24,600 --> 00:33:25,400
Speaker 12: how to do something better.

708
00:33:25,440 --> 00:33:26,800
Speaker 6: Please let us know. We'll come in.

709
00:33:27,160 --> 00:33:29,640
Speaker 12: But is there The fact is we're a global bank today,

710
00:33:29,680 --> 00:33:31,440
Speaker 12: We're adequately scaled for the environment.

711
00:33:31,440 --> 00:33:33,880
Speaker 6: We're growing quite nicely. That's all I'm focused on.

712
00:33:34,160 --> 00:33:37,600
Speaker 9: Okay, if you look at regulators in you know, in

713
00:33:37,640 --> 00:33:40,280
Speaker 9: the UK and elsewhere, would they be ready for takeover

714
00:33:40,520 --> 00:33:43,960
Speaker 9: of a large systemic bank by you know, Middle Eastern money.

715
00:33:44,480 --> 00:33:46,520
Speaker 12: Well, I noticed that there was a takeover of a

716
00:33:46,600 --> 00:33:49,360
Speaker 12: large systemic bank in Switzerland a few weeks back, and it.

717
00:33:49,280 --> 00:33:51,920
Speaker 6: Happened in a weekend. So I guess that means it's domestic.

718
00:33:52,200 --> 00:33:56,120
Speaker 12: In the right in the right circumstance, regulators can get

719
00:33:56,160 --> 00:33:56,600
Speaker 12: things going.

720
00:33:57,680 --> 00:34:02,240
Speaker 6: I think the it's very pressive to see how the various.

721
00:34:02,000 --> 00:34:05,840
Speaker 12: Investors in the golf. We're sitting here in Qatar today.

722
00:34:05,880 --> 00:34:09,560
Speaker 12: I just had a panel discussion with the head of

723
00:34:09,280 --> 00:34:13,160
Speaker 12: the Qatar Investment Authority. That's a very impressive investor with

724
00:34:13,239 --> 00:34:16,440
Speaker 12: a truly global perspective, a lot of experience investing, and

725
00:34:16,960 --> 00:34:19,200
Speaker 12: I think these the various countries on the golf. Of course,

726
00:34:19,200 --> 00:34:22,320
Speaker 12: they are accumulating savings right now and they're diversifying their economy.

727
00:34:22,640 --> 00:34:23,799
Speaker 6: So that's why we're here.

728
00:34:23,840 --> 00:34:25,919
Speaker 12: That's why we're investing so much capital into the Middle

729
00:34:25,960 --> 00:34:29,000
Speaker 12: East because we see these huge opportunities to connect that

730
00:34:29,320 --> 00:34:32,520
Speaker 12: capital with all the opportunities in Asia and vice versa.

731
00:34:32,600 --> 00:34:34,800
Speaker 6: So do you need to have a bank to do that? No,

732
00:34:35,000 --> 00:34:36,440
Speaker 6: you need to have a bank like us. It's prepared

733
00:34:36,480 --> 00:34:37,799
Speaker 6: to play that bridging role.

734
00:34:38,200 --> 00:34:40,000
Speaker 9: What's the hardest thing being the bank right now? Is

735
00:34:40,000 --> 00:34:42,439
Speaker 9: it how to deal with China?

736
00:34:43,080 --> 00:34:43,279
Speaker 7: Great?

737
00:34:43,360 --> 00:34:46,080
Speaker 6: At the moment, I think everybody's very focused on liquidity.

738
00:34:46,360 --> 00:34:48,440
Speaker 12: So even though we are we as a bank, and

739
00:34:48,480 --> 00:34:50,160
Speaker 12: I think the banking industry broadly.

740
00:34:49,880 --> 00:34:52,320
Speaker 6: Is extremely liquid and will remain.

741
00:34:52,040 --> 00:34:54,560
Speaker 12: Liquid even after we go through a period of quantitative

742
00:34:54,560 --> 00:34:57,560
Speaker 12: tightening or whatever. But the rules changed when Silicon Valley

743
00:34:57,560 --> 00:34:59,960
Speaker 12: Bank went busted and then Credits Feees went through its

744
00:35:00,080 --> 00:35:03,240
Speaker 12: from while a week later, and so everybody's looking.

745
00:35:03,080 --> 00:35:06,200
Speaker 6: Hard at whether the deposits are as sticky as we thought.

746
00:35:07,080 --> 00:35:09,800
Speaker 12: I think that that that, as so many things have

747
00:35:11,160 --> 00:35:13,960
Speaker 12: made it through these testing prayers, will the industry will

748
00:35:13,960 --> 00:35:14,359
Speaker 12: be fine here?

749
00:35:14,360 --> 00:35:15,480
Speaker 6: I'm sure Center Trubor.

750
00:35:15,239 --> 00:35:16,000
Speaker 7: Will be fine.

751
00:35:16,400 --> 00:35:17,839
Speaker 6: So that's the immediate concern, I think.

752
00:35:17,840 --> 00:35:20,960
Speaker 12: In the longer term from a banking perspective, of course,

753
00:35:20,960 --> 00:35:23,160
Speaker 12: we've always got an eye on the East West tensions.

754
00:35:23,560 --> 00:35:26,120
Speaker 12: But you know, the best thing that happens to our

755
00:35:26,160 --> 00:35:29,080
Speaker 12: business is we keep trade levels very high, which is

756
00:35:29,080 --> 00:35:31,680
Speaker 12: what they am record record levels of trade between China

757
00:35:31,680 --> 00:35:34,719
Speaker 12: and the US, just as an example. But China is

758
00:35:34,760 --> 00:35:37,920
Speaker 12: accelerating its pace of opening up, opening up as capital markets,

759
00:35:38,120 --> 00:35:40,759
Speaker 12: and for a bank that's structurally a connector, that's a

760
00:35:40,800 --> 00:35:41,200
Speaker 12: good thing.

761
00:35:41,640 --> 00:35:42,239
Speaker 6: That's a good thing.

762
00:35:42,280 --> 00:35:44,239
Speaker 9: And how can you be sure that it's opening up

763
00:35:44,480 --> 00:35:47,120
Speaker 9: for real without a step forward to step backwards, because

764
00:35:47,280 --> 00:35:51,000
Speaker 9: we're sometimes hearing mixed messages from the Chinese authorities.

765
00:35:51,320 --> 00:35:53,480
Speaker 12: I think when you look over really over the decades now,

766
00:35:54,000 --> 00:35:56,799
Speaker 12: China has been sort of race ahead, consolidated a bit

767
00:35:56,880 --> 00:36:00,640
Speaker 12: race ahead. I think that's quite normal the structure. China

768
00:36:00,719 --> 00:36:02,960
Speaker 12: is part of the global economy in a very, very

769
00:36:02,960 --> 00:36:04,440
Speaker 12: big way and wants.

770
00:36:04,239 --> 00:36:06,319
Speaker 6: To remain part of the global economy in a big way.

771
00:36:06,880 --> 00:36:09,719
Speaker 12: In order to do that, they need to liberalize the

772
00:36:09,800 --> 00:36:12,520
Speaker 12: arrangements for capital and goods and services moving in and

773
00:36:12,560 --> 00:36:13,360
Speaker 12: out of China.

774
00:36:13,480 --> 00:36:16,640
Speaker 6: That's been a steady objective for decades.

775
00:36:16,719 --> 00:36:20,440
Speaker 12: Now it's accelerating at the moment, I think for all

776
00:36:20,440 --> 00:36:23,400
Speaker 12: the reasons around the geopolitical tensions, and I think it.

777
00:36:23,360 --> 00:36:24,520
Speaker 6: Will continue to move forward.

778
00:36:24,680 --> 00:36:27,200
Speaker 12: But will they take time from time to time to consolidate,

779
00:36:27,680 --> 00:36:29,720
Speaker 12: maybe just pull back a little bit before moving forward.

780
00:36:29,760 --> 00:36:32,680
Speaker 9: Of course, But when you talk about deposits and actually liquidity,

781
00:36:32,760 --> 00:36:34,640
Speaker 9: do we need to look at depositors base at some

782
00:36:34,719 --> 00:36:35,320
Speaker 9: of the banks?

783
00:36:35,400 --> 00:36:37,920
Speaker 6: Is there too much concentration so are we going to

784
00:36:37,920 --> 00:36:38,359
Speaker 6: see more.

785
00:36:38,280 --> 00:36:42,200
Speaker 9: Regulation and is that regulation warranted or could it.

786
00:36:42,080 --> 00:36:44,320
Speaker 6: Be like wrong write this, It's a big question.

787
00:36:44,800 --> 00:36:47,360
Speaker 12: I think it's very clear that there were some deposit

788
00:36:47,400 --> 00:36:49,879
Speaker 12: bases in particular in the US, although some would say

789
00:36:49,880 --> 00:36:54,160
Speaker 12: credit serace as well, that were too concentrated, and we

790
00:36:54,200 --> 00:36:57,600
Speaker 12: know that the market was merciless with those players. We

791
00:36:57,680 --> 00:37:00,160
Speaker 12: know that in the US, the fed now is but

792
00:37:00,239 --> 00:37:03,240
Speaker 12: a term funding facility in place.

793
00:37:04,280 --> 00:37:04,759
Speaker 6: It's not a.

794
00:37:04,680 --> 00:37:07,200
Speaker 12: Guarantee of the banking system, but it is a very

795
00:37:07,280 --> 00:37:08,400
Speaker 12: very substantial backstop.

796
00:37:08,440 --> 00:37:10,120
Speaker 6: So I don't think we're gonna see any more prices.

797
00:37:10,560 --> 00:37:13,080
Speaker 12: But I think everybody's looking to say, okay, let's think

798
00:37:13,080 --> 00:37:15,040
Speaker 12: again about how sticky those deposits are.

799
00:37:15,400 --> 00:37:16,040
Speaker 7: But free.

800
00:37:16,200 --> 00:37:18,840
Speaker 12: At the heart of it is banking is a confidence business.

801
00:37:19,200 --> 00:37:21,440
Speaker 12: And if we're going to have a fractional reserve banking

802
00:37:21,440 --> 00:37:24,600
Speaker 12: system technical term meaning you borrow, you.

803
00:37:24,640 --> 00:37:26,239
Speaker 6: Check deposits, and you turn them right.

804
00:37:26,320 --> 00:37:28,520
Speaker 12: If we're gonna have that system central banks, we're gonna

805
00:37:28,560 --> 00:37:33,480
Speaker 12: have to accommodate that with transparent liquidity facilities.

806
00:37:32,960 --> 00:37:33,760
Speaker 6: For healthy banks.

807
00:37:33,840 --> 00:37:36,560
Speaker 9: But does mobile banking change anything because we used to

808
00:37:36,560 --> 00:37:38,480
Speaker 9: have to q op and actually get to we stuff

809
00:37:38,480 --> 00:37:38,840
Speaker 9: to marke up.

810
00:37:38,960 --> 00:37:40,279
Speaker 12: But I'll tell you the moment that there was a

811
00:37:40,360 --> 00:37:42,759
Speaker 12: queue in front of Northern Rock in two thousand and seven,

812
00:37:42,800 --> 00:37:45,279
Speaker 12: the bank was done so in fact way in some

813
00:37:45,320 --> 00:37:47,200
Speaker 12: ways that might even be worse because it was visible.

814
00:37:47,200 --> 00:37:49,960
Speaker 6: It was a news story. So the mobile banking means

815
00:37:49,960 --> 00:37:50,879
Speaker 6: everything goes a bit faster.

816
00:37:51,719 --> 00:37:54,080
Speaker 12: But bank runs are bank runs, and as soon as

817
00:37:54,120 --> 00:37:56,239
Speaker 12: you lose confidence, it's hard to get it back.

818
00:37:56,360 --> 00:37:58,239
Speaker 9: Does the end of credit sueeze actually mean that you

819
00:37:58,280 --> 00:37:59,360
Speaker 9: get market share in Asia?

820
00:37:59,400 --> 00:38:02,799
Speaker 12: On look, I mean credit Suiece's business is being distributed

821
00:38:02,880 --> 00:38:05,319
Speaker 12: across the market. The UBS acquired a lot of it,

822
00:38:05,360 --> 00:38:08,000
Speaker 12: but UBS was already they have four hundred pound gerilla,

823
00:38:08,080 --> 00:38:10,600
Speaker 12: so they can't they can't retain everything that came in

824
00:38:10,640 --> 00:38:11,480
Speaker 12: from the Credit Suaese.

825
00:38:12,200 --> 00:38:13,320
Speaker 6: Some of the money had moved before.

826
00:38:13,400 --> 00:38:16,200
Speaker 12: Obviously, there's almost over two hundred million dollars of outflows

827
00:38:16,480 --> 00:38:16,920
Speaker 12: before that.

828
00:38:16,920 --> 00:38:20,120
Speaker 6: That money all went someplace and it's not all going

829
00:38:20,160 --> 00:38:21,120
Speaker 6: back to UBS.

830
00:38:21,280 --> 00:38:25,759
Speaker 12: So yeah, we're picking up We're picking up rms so

831
00:38:25,840 --> 00:38:29,719
Speaker 12: relationship managers, we're picking up asset center managements, we're picking.

832
00:38:29,520 --> 00:38:31,640
Speaker 6: Up some loan market share. That's how much.

833
00:38:33,840 --> 00:38:37,879
Speaker 12: We had twenty billion dollars of inflows last year and

834
00:38:38,000 --> 00:38:41,120
Speaker 12: another five or so billion into our private bank in

835
00:38:41,160 --> 00:38:43,280
Speaker 12: the first quarter of this year, which in the overall

836
00:38:43,280 --> 00:38:45,520
Speaker 12: scheme of credit suitese is not a big deal for

837
00:38:45,600 --> 00:38:46,120
Speaker 12: center Chutter.

838
00:38:46,160 --> 00:38:47,400
Speaker 6: It's it's material.

839
00:38:48,080 --> 00:38:50,440
Speaker 9: We talk about the UK almost every day, as you know,

840
00:38:50,600 --> 00:38:52,239
Speaker 9: it could do better, it needs to do better. There's

841
00:38:52,280 --> 00:38:55,280
Speaker 9: not enough investment do worry about the UK and London

842
00:38:55,320 --> 00:38:57,200
Speaker 9: specifically as as a capital market.

843
00:38:57,440 --> 00:38:59,279
Speaker 12: I'm a big believer in the UK right. It's a

844
00:38:59,280 --> 00:39:04,160
Speaker 12: fundamentally resilient place. I think Bridgie Tunak and government are

845
00:39:04,160 --> 00:39:06,640
Speaker 12: doing the right things right now. Of Course politically they've

846
00:39:06,680 --> 00:39:08,520
Speaker 12: got they've got a challenge, given they've given everything that

847
00:39:08,560 --> 00:39:09,080
Speaker 12: we've been through.

848
00:39:09,480 --> 00:39:11,040
Speaker 6: But I think the country is doing the right thing,

849
00:39:11,080 --> 00:39:12,080
Speaker 6: is incredibly resilient.

850
00:39:12,400 --> 00:39:14,440
Speaker 12: I think the fact that that we've not had an

851
00:39:14,440 --> 00:39:17,840
Speaker 12: actual drop in economy or negative economic growth, no recession,

852
00:39:18,239 --> 00:39:20,920
Speaker 12: quite impressive given them the buffetting and the economy. But

853
00:39:20,920 --> 00:39:25,200
Speaker 12: there's an inflation problem, there's a I think there's there's

854
00:39:25,239 --> 00:39:27,839
Speaker 12: some all sorts of challenges around corporate governance which which

855
00:39:27,880 --> 00:39:28,640
Speaker 12: have to be worked through.

856
00:39:28,880 --> 00:39:30,480
Speaker 9: Okay, well we'll have to get you back on to

857
00:39:30,480 --> 00:39:32,239
Speaker 9: talk about that, Bill, Thanks so much, Bill Winter's there

858
00:39:32,239 --> 00:39:34,440
Speaker 9: a standard charged with that, John, and that'll send it

859
00:39:34,440 --> 00:39:36,400
Speaker 9: back to you in New York and we'll have plenty

860
00:39:36,440 --> 00:39:37,040
Speaker 9: more drive day.

861
00:39:37,239 --> 00:39:39,560
Speaker 4: Hey, Frank, seeing wonderful work has always fran scein Lacquay

862
00:39:39,600 --> 00:39:41,880
Speaker 4: there with Bill Winter's of standard Challe it's sitting in

863
00:39:41,960 --> 00:39:44,480
Speaker 4: them at least at the Kata Economic Forum.

864
00:39:44,640 --> 00:39:48,480
Speaker 2: Subscribe to the Bloomberg Surveillance podcast on Apple Spotify, and

865
00:39:48,640 --> 00:39:52,840
Speaker 2: anywhere else you get your podcasts. Listen live every weekday,

866
00:39:53,080 --> 00:39:56,600
Speaker 2: starting at seven am Eastern on Bloomberg dot Com, the

867
00:39:56,719 --> 00:39:59,000
Speaker 2: iHeartRadio app tune In.

868
00:39:59,239 --> 00:40:00,640
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869
00:40:01,120 --> 00:40:04,800
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870
00:40:05,160 --> 00:40:09,040
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871
00:40:09,239 --> 00:40:10,960
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