WEBVTT - Surveillance: Big Bank Earnings 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz Jailey. We bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com, 0:00:23.920 --> 0:00:30.760 and of course on the Bloomberg terminal. Kenna Leon joins 0:00:30.840 --> 0:00:33.279 us some c fr as at a first look at 0:00:33.280 --> 0:00:35.800 the data as it comes out. Ken, I want to 0:00:35.840 --> 0:00:39.240 go immediately to use of cash and that they did 0:00:39.240 --> 0:00:42.920 a four point three billion share repurchase coming out of 0:00:42.960 --> 0:00:46.720 this pandemic. What did these banks and what does Mr 0:00:46.760 --> 0:00:51.680 Diamond do with the reality of all that cash? So 0:00:51.800 --> 0:00:54.760 it's a return of capital, um Shaney. Diamond has said 0:00:54.840 --> 0:01:00.800 that we're over capitalized the fat last months. By July 0:01:01.280 --> 0:01:05.559 they'll be able to increase their dividend and also buy backs. 0:01:06.200 --> 0:01:10.080 That would be a big change since the last twelve months. Um. 0:01:10.160 --> 0:01:12.360 So the return of capital is a big theme for 0:01:12.760 --> 0:01:16.440 being an investor in banks. Ken. Right now, the headline 0:01:16.480 --> 0:01:19.600 coming from the CEO of Jamie Diamond of JP Morgan, 0:01:19.720 --> 0:01:23.240 loan demand remains challenged. That's the issue right now. Ken, 0:01:23.680 --> 0:01:25.720 Do you see that persisting through the early part of 0:01:25.760 --> 0:01:30.120 this year into the middle um. It's incredibly important because 0:01:31.040 --> 0:01:35.440 loan volumes are and loan balances both for consumer and 0:01:35.480 --> 0:01:39.039 for commercial, UH is going to drive the delta for 0:01:39.200 --> 0:01:42.720 performance for the bank. We've already almost maxed out in 0:01:42.840 --> 0:01:46.880 terms of the investment bank. For JP Morgan, about fifty 0:01:47.319 --> 0:01:50.520 of revenue comes from the investment bank over the last 0:01:50.600 --> 0:01:53.920 five years. Though JP Morgan is the only bank that 0:01:54.000 --> 0:01:58.920 has positive net interest income compared to the other large banks. 0:01:59.240 --> 0:02:02.280 That's an incredible mobile fact that in a low rate 0:02:02.440 --> 0:02:05.720 environment we also first need as the loan activity. So 0:02:05.760 --> 0:02:09.120 I don't think UH JP Morrigan on the earning school 0:02:09.280 --> 0:02:13.119 really wants to talk about net interest income given that 0:02:13.360 --> 0:02:15.760 it's such a difficult challenge, and that was the time 0:02:15.800 --> 0:02:17.480 to talk about the investment bank just for a moment. 0:02:17.560 --> 0:02:20.440 Can another headline crossing the investment banking revenue coming in 0:02:20.480 --> 0:02:22.960 at two point eight five billion dollars the estimate two 0:02:22.960 --> 0:02:24.920 point four six billion at least have just going through 0:02:24.960 --> 0:02:27.480 the training numbers right now. Fixed sales and trading revenue 0:02:27.520 --> 0:02:29.919 five point seven six billion, the estimate five point zero 0:02:30.000 --> 0:02:33.480 two billion. Upside surprise that likewise on equity sales and 0:02:33.480 --> 0:02:36.200 trade in revenue to three point two nine billion the 0:02:36.280 --> 0:02:38.440 estimate two point three two billion. I think it's fair 0:02:38.480 --> 0:02:41.320 to say the first quarter was pretty decent for JP Morgan, Lisa, 0:02:41.440 --> 0:02:43.600 they crushed it, which is the reason why it's surprising 0:02:43.680 --> 0:02:46.560 the shares are lower after beating expectations. Just to give 0:02:46.600 --> 0:02:48.600 you a sense of how much they beat fixed income 0:02:48.639 --> 0:02:51.520 trading up fifteen percent, which beat intimate stock trading up 0:02:51.600 --> 0:02:54.919 forty seven percent. Ken, it is not about this, As 0:02:54.919 --> 0:02:57.119 you said, this is not the area that people want 0:02:57.160 --> 0:02:59.360 to see the growth in because this is fickle and 0:02:59.400 --> 0:03:02.359 frankly we have It's already seen trading volumes come down dramatically. 0:03:02.680 --> 0:03:05.600 We've seen deal volume up. People were expecting that, and yes, 0:03:05.680 --> 0:03:08.760 JP Morgan crushed that. What are people actually looking at 0:03:08.800 --> 0:03:11.160 that you sending shares lower? Is it the fact that 0:03:11.200 --> 0:03:15.040 deposits rose this and that loan growth was a easily 0:03:15.120 --> 0:03:19.560 one percent On this backdrop, I think it really relates 0:03:19.600 --> 0:03:23.320 to growth and return of capital um. JP Morgan has 0:03:23.360 --> 0:03:27.079 done incredibly well. Uh. They tend to outperform the other 0:03:27.520 --> 0:03:30.760 large banks, and I think when you look ahead to 0:03:30.800 --> 0:03:34.120 the rest of the year, for the analysts, the concern 0:03:34.160 --> 0:03:37.400 always is the first quarter is typically the strongest quarter 0:03:37.960 --> 0:03:41.400 um and seasonally it begins to ease. So I mean 0:03:41.440 --> 0:03:44.320 to put these kind of numbers together for the next 0:03:44.400 --> 0:03:47.160 quarter and the quarter after that are going to be challenging. 0:03:47.440 --> 0:03:49.160 And that's why I think they're going to talk about 0:03:49.240 --> 0:03:52.960 return of capital because investors out there want total return. 0:03:53.200 --> 0:03:54.720 I want to go there can, but I think so 0:03:54.760 --> 0:03:56.880 important is a headline buried in here. We're gonna put 0:03:56.880 --> 0:03:59.880 these headlines up, folks, because JP Morgan does a great 0:04:00.080 --> 0:04:03.520 job of laying out the overall bank and then these categories. 0:04:03.920 --> 0:04:06.960 Is well, kenn Leon, you know this is all about technology, 0:04:07.360 --> 0:04:11.600 and buried in the stream of headlines is mobile customers 0:04:11.720 --> 0:04:16.920 up nine percent? I'm taking that almost as a revenue proxy. 0:04:16.960 --> 0:04:19.080 Can you move that over to a bank that's going 0:04:19.120 --> 0:04:22.960 to deliver high single digit revenue? Stream out thirty six 0:04:23.240 --> 0:04:26.680 or dare I say out sixty months? You know some 0:04:26.760 --> 0:04:29.760 mobile applications and we've had tom through the years the 0:04:29.800 --> 0:04:33.120 discussion of you know, bricks and motor and branches, but 0:04:33.160 --> 0:04:36.279 it's almost like a home depot where it's omni channel 0:04:36.360 --> 0:04:40.760 shopping your ability to do banking, and most consumers are 0:04:40.760 --> 0:04:43.760 now able to do it through their mobile phone um. 0:04:43.800 --> 0:04:47.800 But additionally, a lot of banking gets done coming into 0:04:47.800 --> 0:04:52.760 the branch, particularly for small business owners. And they're also 0:04:52.880 --> 0:04:57.360 increasing the number of their financial centers and branches UH 0:04:57.400 --> 0:05:00.560 in markets that they really don't have a present. That's 0:05:00.560 --> 0:05:04.280 why I think Army channel gives them that capability. As 0:05:04.320 --> 0:05:07.680 you've noted with technology Ken, fantastic to catch up with 0:05:07.720 --> 0:05:10.120 you as always always going to see you too, Kelly 0:05:10.120 --> 0:05:13.200 on there of CFR A the global director of Equity Research. 0:05:19.040 --> 0:05:21.080 If we've got the right guess to talk to Joannifer 0:05:21.120 --> 0:05:24.520 all right now about summoning all this together. Jeff, you 0:05:24.600 --> 0:05:27.200 joined us now being y Melon senior strategist. Jeff, can 0:05:27.200 --> 0:05:28.840 we just go back to that final point that we 0:05:28.920 --> 0:05:33.359 made with Allison there the fiscal support has disrupted what 0:05:33.560 --> 0:05:36.640 is happening with traditional lenders here in America? How do 0:05:36.640 --> 0:05:39.880 you read that, Jeff? Well, you can read that in 0:05:39.960 --> 0:05:45.719 two ways. One is the government now being the primary 0:05:45.800 --> 0:05:48.799 source some of them demand, you know, the primary engine 0:05:49.040 --> 0:05:52.240 of an economy. If that's so they can raise money 0:05:52.360 --> 0:05:54.680 through a non loan channels, are you they're going to 0:05:54.800 --> 0:05:58.680 access are funding directly from investors and from a capsule market. 0:05:58.800 --> 0:06:01.799 So but secondly, there is a fear of a displacement effect, 0:06:01.920 --> 0:06:04.200 right and the fact that fistal has to do the work. 0:06:04.320 --> 0:06:06.680 It means there is no private sector loan demand or 0:06:06.800 --> 0:06:09.719 very limited private sector loan demand right now, so banks 0:06:09.760 --> 0:06:11.920 are stuck in that sense. So ultimately it's a chicken 0:06:11.920 --> 0:06:14.560 and egg story. The hope is fistal kickstarts the economy, 0:06:14.600 --> 0:06:16.960 generates the private sector demand, and then banks can be 0:06:17.000 --> 0:06:19.839 happy again, which steeper your curves of course, Jeff, can 0:06:19.880 --> 0:06:23.880 we get inflation true inflation if banks are not increasing 0:06:23.880 --> 0:06:26.920 their lending again, it goes down to the chicken and 0:06:27.080 --> 0:06:30.000 x Lroy. Banks will only believe or only start to 0:06:30.040 --> 0:06:33.479 lend when they believe there is sustainable inflation driven by demand. 0:06:33.680 --> 0:06:35.880 So that's what central banks have been saying, Where is 0:06:35.880 --> 0:06:38.359 the demand going to come from? And we want to 0:06:38.360 --> 0:06:41.719 see inflatent on a sustained basis right now. They don't 0:06:41.720 --> 0:06:43.800 even know how much economic scarring it is going to be. 0:06:43.960 --> 0:06:46.080 I Left talked about a five year window. It could 0:06:46.080 --> 0:06:50.040 take that lodge if that's pretty much jump in it um. 0:06:50.200 --> 0:06:52.880 The absence of lending is not because there is an 0:06:52.920 --> 0:06:55.320 absence of demand. There's an absence of demand for loans 0:06:55.320 --> 0:06:58.400 because there is an abundance of cash. The retail sales 0:06:58.440 --> 0:07:01.160 on Thursday term are going to be absolutely stellar because 0:07:01.160 --> 0:07:03.479 people are spending. They're just not going to the banks 0:07:03.480 --> 0:07:06.760 for that money. That's the story. I would separate John 0:07:06.839 --> 0:07:10.600 the traditional banks from the big international banks, and Jeff, 0:07:10.640 --> 0:07:13.320 you this is an unfair question to you, but I'm 0:07:13.320 --> 0:07:15.280 going to ask it anyways. With your years of work 0:07:15.280 --> 0:07:19.440 in London, is the next frontier for our successful American 0:07:19.440 --> 0:07:23.160 banks to take on Europe into game market share on 0:07:23.200 --> 0:07:27.000 the European continent. I'm not sure that's a fair fight, 0:07:27.080 --> 0:07:29.520 to be honest, and because on what Europe is pushing for, 0:07:29.560 --> 0:07:32.400 it's actually banking union. US has a banking union, it 0:07:32.560 --> 0:07:35.280 was formed them that way to Europe, but before Europe 0:07:35.280 --> 0:07:37.320 can actually have a full fledge banking union, I actually 0:07:37.440 --> 0:07:40.520 don't think that is competition between equals. But if you 0:07:40.520 --> 0:07:43.960 can actually see lenders from the emerging markets from Asia 0:07:44.080 --> 0:07:46.440 start to scrawl overseas that there haven't been that successful 0:07:46.480 --> 0:07:48.880 so far but for the US banks, so they should 0:07:48.880 --> 0:07:50.840 actually probably watch their rare, you know, rather than just 0:07:50.880 --> 0:07:53.200 focus across the Atlantic. Jeff, let's get a market call. 0:07:53.280 --> 0:07:56.600 What do you like right now? So right now, I 0:07:56.600 --> 0:07:58.960 think markets are really looking for risk again, looking to 0:07:59.160 --> 0:08:02.320 carry trade right, and Europe really is the one in 0:08:02.400 --> 0:08:04.840 focus on. We're seeing euro dollar push up against one 0:08:04.840 --> 0:08:07.720 twenty again the view that Europe is no longer a 0:08:07.760 --> 0:08:10.680 problematic case in terms of recovery. It's only question of delay. 0:08:10.800 --> 0:08:12.440 They will get back to need to and they will 0:08:12.560 --> 0:08:14.520 hit the rates of the UK and US will get 0:08:14.600 --> 0:08:17.880 and then with the fiscal you will see European reflation. 0:08:18.120 --> 0:08:19.760 What you funded out of I like to find it 0:08:19.760 --> 0:08:22.680 out of Swiss frank maybe some highly valuedation currencies like 0:08:22.680 --> 0:08:26.080 the Taiwan dollar. So these carry trades taking out the 0:08:26.160 --> 0:08:28.160 US dollar angle are the ones I'm looking for. So 0:08:28.160 --> 0:08:30.200 the Euro is no longer the funding currency Jeff. In 0:08:30.240 --> 0:08:34.640 this environment, the Euro has now seen probably the reflation currency, 0:08:34.760 --> 0:08:37.760 and also just taking a step beyond that. European assets 0:08:37.760 --> 0:08:39.960 and if markets are looking for value, there is a 0:08:40.040 --> 0:08:42.080 sensor that Europe is where you want to go in 0:08:42.200 --> 0:08:45.840 terms of equities. But again that margin expansion, that investment 0:08:45.880 --> 0:08:48.439 lift has to come from mg EU, has to come 0:08:48.440 --> 0:08:50.760 from governments, and the last fourt year hours we finally 0:08:50.800 --> 0:08:53.280 seeing the European Union move on that front. They've announced 0:08:53.320 --> 0:08:55.560 the parameters and announce the issue in summers. Hopefully the 0:08:55.559 --> 0:08:58.280 money starts to flow soon. This idea of Europe being 0:08:58.280 --> 0:09:01.400 the reflation trade is born out Vice Stephen major Over 0:09:01.440 --> 0:09:04.480 at HSBC who says that even FED tapering is already 0:09:04.520 --> 0:09:07.160 priced in to where we are in rate and the dollar. 0:09:07.200 --> 0:09:11.560 Would you agree, um, so a lot of I would 0:09:11.559 --> 0:09:14.679 say good news is in the dollar right now, and 0:09:14.720 --> 0:09:17.520 that of course relates to the US monitory policy path. 0:09:17.760 --> 0:09:19.800 If we look at our own custodial eye flow data, 0:09:19.840 --> 0:09:22.480 for example, over the past few weeks, actually investors are 0:09:22.520 --> 0:09:25.320 buying back and the treasuries, so it's a sign that 0:09:25.480 --> 0:09:28.079 the selling treasuries create a price in a stronger US 0:09:28.200 --> 0:09:30.280 covery that is in the price right now. So what 0:09:30.360 --> 0:09:32.920 I'm watching for is where is the money going in 0:09:33.000 --> 0:09:34.840 terms of other markets? Is it going more to Europe? 0:09:34.920 --> 0:09:37.000 Is against emerging markets? We want to see a risk 0:09:37.040 --> 0:09:39.480 on environment, but clients are going to be very selected 0:09:39.600 --> 0:09:41.679 about where they want to be risk on, and Europe 0:09:41.720 --> 0:09:44.079 looks a good candidate right now. Jeff, this is a 0:09:44.200 --> 0:09:47.840 question I normally wouldn't ask, but I think it works today. 0:09:47.880 --> 0:09:51.760 What is your parsing of the inflation dynamic? The separation 0:09:52.280 --> 0:09:56.120 of services and goods the industry. The industry parsing in 0:09:56.160 --> 0:09:59.280 the forty seven different measurements of inflation that we have 0:10:01.000 --> 0:10:04.680 right so you really need to separate the distribution of 0:10:04.679 --> 0:10:07.760 that in terms of if there is good manufacturing demand 0:10:07.840 --> 0:10:10.720 right now, and we've been seeing that for several quarters now, 0:10:10.800 --> 0:10:13.360 at least since the last the end of Q three 0:10:13.600 --> 0:10:17.160 two thousand and twenty, that will continue to drive prices. 0:10:17.200 --> 0:10:19.040 Now on the consumer side, I think what the FED 0:10:19.080 --> 0:10:21.360 and other policymakers, they want to get past this hump. 0:10:21.480 --> 0:10:24.479 They want to get past this base effect driven inflation, 0:10:24.640 --> 0:10:27.040 and then they will start to see whether it's sustainable. 0:10:27.080 --> 0:10:29.600 Aren't that The second point, which is crucial. We talk 0:10:29.640 --> 0:10:31.679 about cash, We talk about consumers and house is having 0:10:31.679 --> 0:10:33.640 a lot of money. Who has it in the UK 0:10:33.880 --> 0:10:37.199 as well? It's concentrated and let's just say the upper 0:10:37.240 --> 0:10:39.960 death stiles of the population. So you want to identify 0:10:40.040 --> 0:10:43.720 baskets where perhaps you see greater spending amongst the lower desciles. 0:10:43.960 --> 0:10:46.920 If that, if those items are not being bored so 0:10:47.080 --> 0:10:50.320 low value bad staples for example, then you're just seeing 0:10:50.520 --> 0:10:53.240 inflation driven by the rich, driven by the wealthy spending. 0:10:53.400 --> 0:10:55.480 It's not trickling down there's a problem there as well. 0:10:55.600 --> 0:10:57.200 Jeff going to catch you up, always going to hear 0:10:57.200 --> 0:10:59.199 from you. Make Jeff you there out of London b 0:10:59.320 --> 0:11:07.120 and wa Melon Sadia strategist an historic move again in 0:11:07.160 --> 0:11:10.320 this original economy seven Vigor has seen this before. Argus 0:11:10.360 --> 0:11:14.200 Research or Director of Financial Institution, Stephen, thanks for joining 0:11:14.280 --> 0:11:18.480 us today. Who will provide the use of cash pressure 0:11:18.960 --> 0:11:21.600 if if you're at a given bank and John's focused 0:11:21.640 --> 0:11:26.640 on Goldman Sachs, which part of the process says, wait 0:11:26.679 --> 0:11:30.080 a minute about dividends, wait a minute about share buy backs, 0:11:30.320 --> 0:11:31.960 and wait a minute with what are we gonna do 0:11:32.000 --> 0:11:35.920 with the cash? Well, it's always so it's a good 0:11:35.920 --> 0:11:39.120 problem to have, right. I think the SEACAR results mid 0:11:39.280 --> 0:11:41.880 year are gonna you know, answer a lot of those questions. 0:11:41.960 --> 0:11:44.839 But banks are you know, certainly flushed with cash right now. 0:11:44.880 --> 0:11:48.360 They've had moretoriums on on dividends and and shared buy 0:11:48.400 --> 0:11:51.560 backs for you know, for over a year now. Uh, 0:11:51.600 --> 0:11:53.800 And I think we're gonna have you know, pretty strong 0:11:54.400 --> 0:11:58.120 shareholder return figures come out with CCAR results mid year. Stephen, 0:11:58.160 --> 0:12:01.760 do you prefer Goldman Sacks Morgans only the broker focused banks, 0:12:01.760 --> 0:12:04.840 the ones that are less susceptible to loan demand at 0:12:04.840 --> 0:12:07.280 a time when people do have so much cash as 0:12:07.280 --> 0:12:11.840 a result of government intervention. Well, I think there's a 0:12:12.000 --> 0:12:16.000 natural sort of you know, conclusion at some point to 0:12:16.040 --> 0:12:19.200 the big capital markets banks were favorable on JP Morgan 0:12:19.400 --> 0:12:22.720 Morgan Stanley on Bank of America for you know, for 0:12:22.760 --> 0:12:25.160 the strength that we've seen the investment banking, the trading 0:12:25.160 --> 0:12:28.360 has just been phenomenal. Uh, and all the things that 0:12:28.400 --> 0:12:31.520 are in place that you would expect to see. Uh. 0:12:31.640 --> 0:12:34.760 You know why why are those numbers so strong? M 0:12:34.760 --> 0:12:38.160 and A activity more companies coming to market is because 0:12:38.200 --> 0:12:41.199 of the high CEO confidence, the record stock market values, 0:12:41.280 --> 0:12:43.839 the easy financing that we're seeing. So so I think 0:12:43.840 --> 0:12:47.240 there's another quarter or two probably of you know, really 0:12:47.280 --> 0:12:51.000 strong numbers coming out of investment banking and trading. But 0:12:51.160 --> 0:12:53.040 you know, as you've been talking about on the program, 0:12:53.120 --> 0:12:57.000 the anchor a bit has been that interesting. U, there's 0:12:57.040 --> 0:13:01.520 been the net margin issue use obviously is the you know, 0:13:01.760 --> 0:13:03.720 we're going to start to lap that as the FED 0:13:04.080 --> 0:13:06.840 from one year ago reduced rates to zero h So 0:13:07.000 --> 0:13:09.720 the year of the year comparisons will start to get better. 0:13:10.080 --> 0:13:12.160 But you really need loan growth, you know, for a 0:13:12.160 --> 0:13:16.880 bank like JP Morgan of revenues we expect are coming 0:13:16.880 --> 0:13:20.240 from that in just income, so those capital market side 0:13:20.280 --> 0:13:22.960 is only going to go so far. So we we 0:13:23.040 --> 0:13:25.760 do think there is you know, silver lining for regionals, 0:13:26.280 --> 0:13:29.199 uh in that the as as margins improved as the 0:13:29.520 --> 0:13:33.720 yield curve stepens as those lost reserves come back into profits. 0:13:34.040 --> 0:13:36.920 So you know, I wouldn't count out the regional banks 0:13:37.280 --> 0:13:39.240 just yet, and we'll go to the regional banks in 0:13:39.280 --> 0:13:41.079 a bit. But I want to stick on loan demand 0:13:41.120 --> 0:13:42.840 because that really is the story today. Is a lot 0:13:42.880 --> 0:13:45.319 of people pass out? How much is this a lack 0:13:45.360 --> 0:13:48.200 of demand resulting from people perhaps not able to hire 0:13:48.559 --> 0:13:51.320 or not willing to chart a new business after what 0:13:51.400 --> 0:13:54.199 they just experienced, or is this just simply because people 0:13:54.240 --> 0:13:56.880 have so much cash. When does it start to matter 0:13:57.120 --> 0:13:59.440 that loan demand is tepid when it comes to the 0:13:59.480 --> 0:14:04.199 economic prospect. Well, I think later this year, the expectation, 0:14:04.559 --> 0:14:08.600 uh certainly would be that as as vaccines do their jobs, 0:14:08.720 --> 0:14:12.200 as more people come back out into the workforce, as uh, 0:14:12.240 --> 0:14:14.120 you know we have we've already seen strong demand and 0:14:14.200 --> 0:14:18.640 housing and cars which are too really strong uh segments 0:14:18.920 --> 0:14:21.800 for for consumers in terms of you know, just pure 0:14:21.840 --> 0:14:25.160 dollar volume. But they have found that they don't need 0:14:25.520 --> 0:14:28.480 to to take lending out for a lot of other things, 0:14:28.520 --> 0:14:31.280 including credit card debt, which has been actually reduced over 0:14:31.320 --> 0:14:34.560 the course of the pandemic as the stimulus measures and others, 0:14:34.560 --> 0:14:37.520 and people have just been spent less on services and 0:14:37.520 --> 0:14:40.120 other things. So so I think that the worry begins 0:14:40.440 --> 0:14:43.200 later this year. Um, you know, we've moved down from 0:14:44.000 --> 0:14:47.240 unemployment down to six percent, so the next tranche of 0:14:47.240 --> 0:14:49.240 that is going to be harder to come by. I 0:14:49.280 --> 0:14:51.200 don't think we go from here to you know, to 0:14:51.280 --> 0:14:53.640 the previous low three and a half percent anytime soon, 0:14:54.520 --> 0:14:56.600 so that that kind of takes time to work off. 0:14:56.600 --> 0:14:58.720 In fact, you know, many jobs may not may not 0:14:58.800 --> 0:15:00.960 come back at all. So I think it's just a 0:15:01.000 --> 0:15:04.640 testament to the how strong the consumer balance sheet is today. 0:15:05.240 --> 0:15:08.200 They feel they don't need those, uh, those dollars for 0:15:08.200 --> 0:15:11.880 for lending. Uh. And I would happen to agree with 0:15:12.000 --> 0:15:15.920 Jamie diamond and at his comment about long growth being challenging. 0:15:16.480 --> 0:15:18.440 I think that is the case and will be the 0:15:18.480 --> 0:15:20.240 case for the next few quarters. Here, what do you 0:15:20.240 --> 0:15:23.160 think the pressure looks like to drop standards for lending 0:15:23.240 --> 0:15:29.000 right now, Stephen, You mean, what is what are the 0:15:29.000 --> 0:15:31.000 head winds to lending? Well, these banks is sitting on 0:15:31.040 --> 0:15:33.240 a ton of deposits. There's a lot of money that 0:15:33.240 --> 0:15:34.880 needs to get put to work if they can, Stephen. 0:15:34.960 --> 0:15:36.720 So I'm trying to understand if the demands not there 0:15:36.720 --> 0:15:42.360 from traditional sources, where do they go. Well, traditionally banks 0:15:42.360 --> 0:15:45.280 would you know, if given the strong shape of consumers 0:15:45.280 --> 0:15:49.520 and businesses, they would lower lending standards and uh and 0:15:49.520 --> 0:15:51.360 and try to push it that way. Um, you know 0:15:51.400 --> 0:15:53.600 that always has the counter effect down the road of 0:15:53.880 --> 0:15:57.320 higher charge offs. So um, I think it's yeah, the 0:15:57.400 --> 0:15:59.960 dynamics you mentioned very true on the on the deposit 0:16:00.080 --> 0:16:03.920 we're just seeing, you know, we've seen phenomenal, uh record 0:16:03.960 --> 0:16:06.640 growth in deposits, and I think that's one thing that 0:16:06.720 --> 0:16:09.200 needs to be where down. I mean, if you have 0:16:10.120 --> 0:16:12.440 ten in the bank, you're probably going to spend that 0:16:12.760 --> 0:16:14.640 first before you you know, go take out a loan. 0:16:15.040 --> 0:16:17.240 So I think that does have to wind down before 0:16:17.280 --> 0:16:18.840 we see that long growth and that's and that that's 0:16:18.880 --> 0:16:21.960 just an additional headwind. Uh So So no, I don't 0:16:21.960 --> 0:16:24.480 I don't think they have a simil bullet here to 0:16:24.560 --> 0:16:28.240 try to increase lending growth. They again could go out 0:16:28.280 --> 0:16:31.520 to the credit quality spectrum, but that tends to come 0:16:31.520 --> 0:16:33.080 back to bite and it's probably not a good idea 0:16:33.080 --> 0:16:35.360 at this time, you know, given were we are in 0:16:35.400 --> 0:16:38.760 the recovery process. Stephen. As a way, Stephen, think of that, 0:16:38.800 --> 0:16:48.160 Augus Research director, a financial institutions reset away from fee 0:16:48.240 --> 0:16:51.200 generation is the reality that it's all supported by a 0:16:51.240 --> 0:16:55.000 boom economy. Seth Carpenter ubs has been wonderful. Wonderful I 0:16:55.000 --> 0:16:59.720 should say about parsing uh this boom economy. Seth just 0:17:00.080 --> 0:17:04.320 gribe how opaque it is to get out beyond Q 0:17:04.640 --> 0:17:08.840 three this year. Oh my gosh, there's so much uncertainty 0:17:08.880 --> 0:17:11.280 at that point. I mean, we're pretty optimistic. We think 0:17:11.400 --> 0:17:14.320 UHO is going to be a pretty solid year, coming 0:17:14.359 --> 0:17:17.000 in just under four percent, but boy, that could go 0:17:17.080 --> 0:17:19.920 wrong in any number of ways. We still have fiscal policy. 0:17:19.960 --> 0:17:22.560 There's the debate about a new infrastructure package. There's a 0:17:22.600 --> 0:17:24.399 debate about how much taxes are going to go up 0:17:24.400 --> 0:17:28.080 in two and I think there's just the overall question 0:17:28.080 --> 0:17:31.960 of what is going to happen globally to the virus. 0:17:32.480 --> 0:17:36.360 Describe the turbulence A phrase from Alan Greenspan is wonderful. 0:17:36.440 --> 0:17:41.760 The age of turbulence. Let's take a boom economy as turbulence. 0:17:42.040 --> 0:17:45.960 Is it good turbulence? Is it a constructive churn of 0:17:46.000 --> 0:17:49.520 the capitalistic system? Yeah, I mean I think it's a 0:17:49.520 --> 0:17:52.000 good turbulence. Depends on if you're a vultrator or not. 0:17:52.480 --> 0:17:54.640 But no, I mean, I think there's a lot here. 0:17:54.880 --> 0:17:57.480 The first important part, I think is just seeing how 0:17:57.560 --> 0:18:00.000 quickly people who are out of work, displaced from their 0:18:00.080 --> 0:18:02.040 jobs get back to work. And I think that's more 0:18:02.040 --> 0:18:05.359 a matter of survival than sort of some underlying medium 0:18:05.359 --> 0:18:07.439 trend for the economy. But I do think there are 0:18:07.480 --> 0:18:11.080 lots of trends that existed pre COVID that are getting accelerated. 0:18:11.119 --> 0:18:13.800 Where you know, think about retail. We know that for 0:18:13.920 --> 0:18:16.199 years there is a decline in employment in retail as 0:18:16.240 --> 0:18:19.760 there was more online shopping. That trend just got massively 0:18:19.800 --> 0:18:21.960 accelerated with COVID, And I think we are going to 0:18:22.000 --> 0:18:24.680 see a continued transformation just in the way the economy 0:18:24.720 --> 0:18:27.160 works because of COVID. If there is so much uncertainty 0:18:27.160 --> 0:18:29.240 about what the shape of this cycle looks like the 0:18:29.320 --> 0:18:31.080 duration of it as well. When we came out of 0:18:31.080 --> 0:18:33.520 the last crisis, we had Muhammad ale Evan of the 0:18:33.520 --> 0:18:35.960 team at PIMCO talking about the new normal. We had 0:18:36.000 --> 0:18:39.920 the likes of Larry Summers reintroducing secular stagnation as a theme. 0:18:39.960 --> 0:18:42.200 And I think we've got a quick understanding about duration 0:18:42.640 --> 0:18:45.440 and the likelihood that we would get a shallow recovery 0:18:45.480 --> 0:18:47.879 as well this time around. It could be anything Morgan 0:18:47.960 --> 0:18:51.399 Stanley talking about shorter hotter, others talking about a return 0:18:51.440 --> 0:18:53.800 to trend off after the less the next couple of years, 0:18:53.840 --> 0:18:56.280 maybe back to what we saw before SETH. What are 0:18:56.320 --> 0:18:59.960 you anticipating, Yeah, I mean, I think there's no question 0:19:00.040 --> 0:19:02.320 and them right now there's a huge amount of impetus 0:19:02.359 --> 0:19:05.399 coming out of both fiscal and monetary policy combined. And 0:19:05.440 --> 0:19:07.399 if our forecast is born out, then we're going to 0:19:07.480 --> 0:19:10.600 see the unemployment rate get back down to the three 0:19:10.600 --> 0:19:12.879 and a half ish range that we saw just before 0:19:13.040 --> 0:19:17.080 covid UH sometime at the end of SAE. And if 0:19:17.119 --> 0:19:19.960 that's right, then what that means is we got through 0:19:20.359 --> 0:19:22.240 basically what it took us a ten year cycle to 0:19:22.280 --> 0:19:24.280 do in just a few years. And I think the 0:19:24.320 --> 0:19:26.680 next question is what happens next. We know that the 0:19:26.800 --> 0:19:29.880 last business cycle was not going to end right away. 0:19:29.920 --> 0:19:32.000 It didn't end on its own. It ended because we 0:19:32.040 --> 0:19:34.919 have this exhaugen of shock from COVID. I personally am 0:19:34.960 --> 0:19:39.119 pretty optimistic that there's plenty of possibility for more productivity gains, 0:19:39.520 --> 0:19:42.080 and I'm also curious to see just how far the 0:19:42.119 --> 0:19:44.440 labor market can go in terms of drawing people back 0:19:44.480 --> 0:19:47.000 in who have been outside of the labor market. How 0:19:47.040 --> 0:19:49.159 much is that view predicated on this idea that the 0:19:49.200 --> 0:19:52.199 cash pile that consumers have, which has actually been a 0:19:52.240 --> 0:19:54.439 problem for the banks since we've been talking about all morning, 0:19:54.600 --> 0:19:58.400 that they actually spend a lot of that money very quickly. Yeah, 0:19:58.400 --> 0:20:00.800 so it's only partially predicated on that. We do think 0:20:00.840 --> 0:20:02.679 that consumer spending is going to pick up and be 0:20:02.840 --> 0:20:05.240 very strong this year, but a lot of that is 0:20:05.560 --> 0:20:09.200 just getting back to a more normal relationship between consumer 0:20:09.280 --> 0:20:12.399 spending on the one hand, and income. Consumer spending is 0:20:12.400 --> 0:20:15.560 still very very depressed relative to, you know, what you 0:20:15.600 --> 0:20:18.880 would normally expect given where aggregate income is, especially consumer 0:20:18.920 --> 0:20:22.480 spending on services that's down six seven percent relative to 0:20:22.560 --> 0:20:25.240 pre COVID levels. If that comes back over the next 0:20:25.280 --> 0:20:27.760 two or three quarters, that's just a huge increase in 0:20:27.840 --> 0:20:31.440 spending in in percentage growth rate terms, and if we're right, 0:20:31.520 --> 0:20:33.040 that's going to be the initial of it is to 0:20:33.080 --> 0:20:36.000 pull thing, pull people back in. Sure, there's probably some 0:20:36.119 --> 0:20:38.359 spending out of that pent up savings out of everything 0:20:38.359 --> 0:20:40.959 that people didn't save last year, but what we know is, 0:20:41.440 --> 0:20:44.040 you know, savings, if it's kept long enough, becomes wealth, 0:20:44.119 --> 0:20:46.439 and we know that consumers tendency to spend out of 0:20:46.440 --> 0:20:48.840 wealth isn't that big. And so I think first order 0:20:48.840 --> 0:20:51.359 it really is let's get back to normal. That that 0:20:51.359 --> 0:20:53.320 that urge people will have to get back to normal. 0:20:53.600 --> 0:20:56.880