1 00:00:05,120 --> 00:00:08,480 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 2 00:00:08,520 --> 00:00:12,360 Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day 3 00:00:12,400 --> 00:00:16,880 Speaker 1: for insight from the best an economics, geopolitics, finance and investment. 4 00:00:17,280 --> 00:00:22,079 Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 5 00:00:22,320 --> 00:00:26,600 Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com, 6 00:00:26,640 --> 00:00:30,400 Speaker 1: the Bloomberg Terminal, and the Bloomberg Business app. John one 7 00:00:30,400 --> 00:00:32,200 Speaker 1: of the things we want to do is get qualified 8 00:00:32,240 --> 00:00:34,360 Speaker 1: people to talk to her and do that right now. 9 00:00:34,440 --> 00:00:40,360 Speaker 1: The story is extraordinary. Jelenac Williams is a former FDIC chair. Yes, Akravth, 10 00:00:40,360 --> 00:00:43,280 Speaker 1: Swain and Moore, but far more than that, She's enjoyed 11 00:00:43,280 --> 00:00:47,000 Speaker 1: the failure of deposit insurance. Her father was flatten in 12 00:00:47,080 --> 00:00:51,240 Speaker 1: Yugoslavia years and years ago over a failure of a bank. 13 00:00:51,360 --> 00:00:56,360 Speaker 1: She wanted into Berkeley sterling academic career, including service in 14 00:00:56,440 --> 00:01:00,200 Speaker 1: the law business in Palo Alto, California. There's no one 15 00:01:00,560 --> 00:01:03,680 Speaker 1: more qualified to talk about this banking mess in the 16 00:01:03,720 --> 00:01:07,959 Speaker 1: former FDIIC chair, Jo Thank you so much for joining 17 00:01:08,000 --> 00:01:10,479 Speaker 1: us this morning. Let me cut to the chase right now. 18 00:01:11,120 --> 00:01:15,360 Speaker 1: Does this crisis have staying power or are we solving 19 00:01:15,680 --> 00:01:18,840 Speaker 1: idiosyncratic tech banking problems? 20 00:01:20,480 --> 00:01:21,880 Speaker 2: I would say, and thank you, by the way for 21 00:01:21,920 --> 00:01:24,840 Speaker 2: having me this morning. I would say that we're at 22 00:01:24,880 --> 00:01:28,280 Speaker 2: the place where this crisis should not have had staying power, 23 00:01:28,680 --> 00:01:31,440 Speaker 2: and yet here we are about five six weeks in, 24 00:01:32,080 --> 00:01:35,240 Speaker 2: and I'm hoping that we're at the tail end of that. 25 00:01:36,040 --> 00:01:38,240 Speaker 3: The government does have a number. 26 00:01:37,959 --> 00:01:40,280 Speaker 2: Of tools they need to use, and I'm happy to 27 00:01:40,360 --> 00:01:40,920 Speaker 2: chat with you. 28 00:01:40,880 --> 00:01:42,199 Speaker 3: About what those tools are. 29 00:01:42,640 --> 00:01:45,920 Speaker 2: But the problems are not so much indiosyncratic as much 30 00:01:46,000 --> 00:01:49,600 Speaker 2: as this point, we have created a crisis of confidence 31 00:01:49,600 --> 00:01:51,600 Speaker 2: in the banking system and that's where we are. 32 00:01:52,120 --> 00:01:55,440 Speaker 1: How does real estate fold into this? Many will say, Okay, 33 00:01:55,440 --> 00:01:57,520 Speaker 1: it's not going to be the drama we've seen over 34 00:01:57,520 --> 00:02:01,480 Speaker 1: the last number of weeks. But commercial real estate, what 35 00:02:01,560 --> 00:02:02,520 Speaker 1: do you observe there? 36 00:02:04,000 --> 00:02:06,960 Speaker 2: A lot of the banks have, actually, especially regional banks, 37 00:02:06,960 --> 00:02:11,160 Speaker 2: have high concentrations and exposure to commercial real estate. In 38 00:02:11,240 --> 00:02:15,400 Speaker 2: good times, they're generally able to navigate the concentrations in. 39 00:02:15,440 --> 00:02:16,720 Speaker 3: Their portfolio very well. 40 00:02:17,040 --> 00:02:19,120 Speaker 2: But again, we are the point where there's so much 41 00:02:19,160 --> 00:02:23,280 Speaker 2: volatility in the marketplace with the market expectations of the banks, 42 00:02:24,000 --> 00:02:27,920 Speaker 2: and frankly, the empty offices in a number of commercial 43 00:02:27,919 --> 00:02:29,720 Speaker 2: markets in the United States are not going to. 44 00:02:29,680 --> 00:02:33,080 Speaker 4: Help that, Jelena. Should these banks be in that business? 45 00:02:33,080 --> 00:02:34,600 Speaker 4: I mean, this is sort of one of the questions 46 00:02:34,639 --> 00:02:37,040 Speaker 4: at a time or seeing the number of smaller and 47 00:02:37,080 --> 00:02:40,519 Speaker 4: regional banks shrink dramatically over the past few years, should 48 00:02:40,520 --> 00:02:42,959 Speaker 4: it be their business to provide a majority of the 49 00:02:43,000 --> 00:02:46,239 Speaker 4: commercial industrial loans, the majority of the commercial real estate lending? 50 00:02:47,760 --> 00:02:49,600 Speaker 2: You know, I think this goes back to the intrinsic 51 00:02:49,680 --> 00:02:52,640 Speaker 2: question of the tiered banking says system in the United States. 52 00:02:52,720 --> 00:02:55,480 Speaker 2: You have different levels of banks and different sizes, so 53 00:02:55,520 --> 00:02:57,280 Speaker 2: one of them, you know, you have community banks. There 54 00:02:57,280 --> 00:03:00,200 Speaker 2: are generally banks below ten billion dollars in asset, mid 55 00:03:00,200 --> 00:03:03,160 Speaker 2: size banks above that, and I would say below one 56 00:03:03,200 --> 00:03:05,960 Speaker 2: hundred billion. Then you get into the regional land, and 57 00:03:06,000 --> 00:03:09,000 Speaker 2: that regional land is about one hundred billion to as 58 00:03:09,040 --> 00:03:11,200 Speaker 2: high as like five hundred billion. Above that, you get 59 00:03:11,200 --> 00:03:13,680 Speaker 2: into the very large banks. And the truth of the 60 00:03:13,720 --> 00:03:16,720 Speaker 2: matter is that if those banks, the regional banks and 61 00:03:16,760 --> 00:03:20,680 Speaker 2: mid sized banks and community banks are not financing local 62 00:03:20,760 --> 00:03:24,920 Speaker 2: real estate commercial real estate transactions, they won't get financed. 63 00:03:25,320 --> 00:03:27,640 Speaker 2: The role of these banks in the US economy is 64 00:03:27,840 --> 00:03:31,720 Speaker 2: so high that people actually frankly underestimate what these banks 65 00:03:31,760 --> 00:03:35,360 Speaker 2: mean for our financial ecosystem. So should they be in it? 66 00:03:35,400 --> 00:03:37,680 Speaker 2: Should they not be in it? It's almost irrelevant that 67 00:03:37,720 --> 00:03:39,960 Speaker 2: they are in it. They need to manage the risk 68 00:03:40,000 --> 00:03:43,040 Speaker 2: in their portfolios and with the rising interest rate environment, 69 00:03:43,440 --> 00:03:46,000 Speaker 2: it's going to be incredibly difficult for them. And frankly, 70 00:03:46,000 --> 00:03:48,680 Speaker 2: the pandemic didn't help with people not wanting to come 71 00:03:48,680 --> 00:03:49,960 Speaker 2: back to offices. 72 00:03:50,240 --> 00:03:51,680 Speaker 3: And you have tens of thousands of. 73 00:03:51,680 --> 00:03:54,080 Speaker 2: Square fit of commercial real estate, even in some of 74 00:03:54,160 --> 00:03:57,320 Speaker 2: the most prime locations, sitting empty. I was just in 75 00:03:57,360 --> 00:03:59,280 Speaker 2: San Francisco a couple of weeks ago, and it's a 76 00:03:59,280 --> 00:03:59,839 Speaker 2: ghost down. 77 00:04:00,240 --> 00:04:03,680 Speaker 4: Well, as a former regulator yourself, should there also be 78 00:04:03,720 --> 00:04:06,840 Speaker 4: the same kind of regulatory scrutiny and requirements at some 79 00:04:06,880 --> 00:04:09,040 Speaker 4: of these regional banks as there are at larger banks. 80 00:04:10,400 --> 00:04:12,160 Speaker 3: No, actually, absolutely not. 81 00:04:12,280 --> 00:04:16,240 Speaker 2: And here's why our regulatory system needs to account for 82 00:04:16,279 --> 00:04:20,040 Speaker 2: different tiers and different I would say strata in our 83 00:04:20,080 --> 00:04:23,480 Speaker 2: banking sector. These banks present different types of risks than 84 00:04:23,560 --> 00:04:27,719 Speaker 2: the GESIS, the global systemically important banks. They present different 85 00:04:27,720 --> 00:04:30,240 Speaker 2: type of risk than mid sized banks, and the job 86 00:04:30,320 --> 00:04:33,520 Speaker 2: of the regulators is basically to accommodate that risk. The 87 00:04:33,600 --> 00:04:36,240 Speaker 2: job of the bank is to manage that risk. The 88 00:04:37,000 --> 00:04:39,800 Speaker 2: bottom line is when the bank fails to manage that risk, 89 00:04:39,839 --> 00:04:42,480 Speaker 2: you get into in a situation that we have been 90 00:04:42,520 --> 00:04:44,640 Speaker 2: in the past few weeks. But it's not you know, 91 00:04:44,720 --> 00:04:46,279 Speaker 2: as much a blame as we can put on the 92 00:04:46,320 --> 00:04:48,800 Speaker 2: banks and the bank risk management in some of the 93 00:04:48,800 --> 00:04:51,479 Speaker 2: failed bank situations, I think there is there is a 94 00:04:51,480 --> 00:04:53,599 Speaker 2: portion of blame that goes on the US government. 95 00:04:54,160 --> 00:04:56,880 Speaker 1: I just looked at the bank assessment rates that the 96 00:04:56,960 --> 00:05:01,320 Speaker 1: FDI CE and my eyes glazed over. Ms McWilliams. I 97 00:05:01,320 --> 00:05:04,280 Speaker 1: mean it's complex, to say the least. How much does 98 00:05:04,360 --> 00:05:08,039 Speaker 1: JP Morgan or Bank of America pay each year for 99 00:05:08,279 --> 00:05:10,480 Speaker 1: FDIC insurance? Do you have a number? 100 00:05:11,839 --> 00:05:13,960 Speaker 3: Well, there is a number. You can go to the FDIC. 101 00:05:14,000 --> 00:05:15,479 Speaker 2: I don't want to single out a bank. It's a 102 00:05:15,480 --> 00:05:17,039 Speaker 2: lot of money. It is a lot of money. There 103 00:05:17,040 --> 00:05:19,720 Speaker 2: are two different sets of formulas. There is a complex 104 00:05:19,760 --> 00:05:22,479 Speaker 2: bank formula. There is a less complex or a small 105 00:05:22,520 --> 00:05:25,760 Speaker 2: bank formula. 106 00:05:25,920 --> 00:05:28,880 Speaker 1: I don't mean interrupt, but I am Senator Warren would say, 107 00:05:29,000 --> 00:05:32,039 Speaker 1: raise the raid on James Diamond and Brian moynan. Is 108 00:05:32,080 --> 00:05:35,240 Speaker 1: there wiggle room here for the big guys to pay more? 109 00:05:35,400 --> 00:05:39,120 Speaker 1: FDI Insurance to take the load off the back of 110 00:05:39,200 --> 00:05:41,679 Speaker 1: Andrew Jackson's four thousand banks. 111 00:05:43,279 --> 00:05:46,520 Speaker 2: So it is very possible that the FDIC may just 112 00:05:46,600 --> 00:05:50,440 Speaker 2: come out in that direction with the special assessment that 113 00:05:50,480 --> 00:05:53,960 Speaker 2: they need to impose to make the deposit Insurance Fund whole. 114 00:05:54,080 --> 00:05:56,799 Speaker 2: As you know, some of the banks that have failed 115 00:05:56,800 --> 00:06:01,520 Speaker 2: and have been subsequently sold have created a deficit for 116 00:06:01,560 --> 00:06:04,000 Speaker 2: the Deposit Insurance Fund and as a result of that, 117 00:06:04,200 --> 00:06:07,039 Speaker 2: there is going to be a special assessment, and I 118 00:06:07,160 --> 00:06:08,200 Speaker 2: believe that's where the. 119 00:06:08,160 --> 00:06:09,159 Speaker 3: FDIC is heading. 120 00:06:09,440 --> 00:06:12,680 Speaker 4: Elena, Are you concerned about the Federal Reserve in its 121 00:06:12,720 --> 00:06:14,599 Speaker 4: role as regulator? Do you put the blame there? It 122 00:06:14,600 --> 00:06:18,240 Speaker 4: seems like everyone's just basically quietly blaming Randy Quarrels and 123 00:06:18,240 --> 00:06:19,960 Speaker 4: then leaving it at that, But do you think that 124 00:06:20,000 --> 00:06:23,160 Speaker 4: this is something endemic in the oversight and the enforcement 125 00:06:23,279 --> 00:06:25,120 Speaker 4: role that they've fed often plays. 126 00:06:26,120 --> 00:06:30,200 Speaker 2: Quite frankly, to blame prior vice chairman for supervision for 127 00:06:30,360 --> 00:06:33,160 Speaker 2: something that has happened about a year and a half 128 00:06:33,200 --> 00:06:35,800 Speaker 2: after he left office is a little bit preposterous. But 129 00:06:35,839 --> 00:06:38,040 Speaker 2: I do think as a former Federal Reserve staff or 130 00:06:38,120 --> 00:06:40,440 Speaker 2: I was there during two thousand and seven, eight nine 131 00:06:40,480 --> 00:06:43,960 Speaker 2: ten crisis, I will tell you this. They're good people 132 00:06:44,000 --> 00:06:46,560 Speaker 2: working at the Fed. They have a lot of mandates 133 00:06:46,600 --> 00:06:49,279 Speaker 2: they have to satisfy. But we are at a place 134 00:06:49,520 --> 00:06:54,479 Speaker 2: that is about financial stability and the whole debate about 135 00:06:54,480 --> 00:06:57,680 Speaker 2: monetary policy and financial stability. We're at the place if 136 00:06:57,680 --> 00:07:00,760 Speaker 2: the banks are not stabilized, are not going to have 137 00:07:00,839 --> 00:07:03,440 Speaker 2: financial stability. And so to the extent the Federal Reserve 138 00:07:03,520 --> 00:07:06,800 Speaker 2: takes its financial stability mandate seriously, I think it's long 139 00:07:06,880 --> 00:07:09,680 Speaker 2: overdue that they take a look at the banking situation 140 00:07:09,760 --> 00:07:11,960 Speaker 2: in the United States and what the interest rate rises 141 00:07:11,960 --> 00:07:14,880 Speaker 2: have done to the banking sector as they contemplate where 142 00:07:14,920 --> 00:07:16,000 Speaker 2: to keep the interest rates. 143 00:07:16,080 --> 00:07:18,560 Speaker 5: Yelena, thank you for wank and on all of this. 144 00:07:18,760 --> 00:07:20,640 Speaker 5: Thank you. Jelena McWilliams stack. 145 00:07:30,800 --> 00:07:35,200 Speaker 1: DA Lipsyng joins this chief Global Economist at PGUM Fixed 146 00:07:35,240 --> 00:07:40,920 Speaker 1: Income with serious experience recently in the White House, in 147 00:07:41,040 --> 00:07:43,800 Speaker 1: the in the office. Is it tomorrow They're going to 148 00:07:43,880 --> 00:07:46,840 Speaker 1: have a meeting a conon fab on the debt. It's 149 00:07:46,840 --> 00:07:49,800 Speaker 1: all politics, isn't it? 150 00:07:49,880 --> 00:07:52,680 Speaker 6: More in more than Lisa, Look, talking is always better 151 00:07:52,720 --> 00:07:54,920 Speaker 6: than not talking. But I'd be surprised if we get 152 00:07:54,920 --> 00:07:57,960 Speaker 6: a decisive break through tomorrow. The incentives are just not 153 00:07:58,040 --> 00:08:01,520 Speaker 6: yet in place. McCarthy is his speakership. If he folds 154 00:08:01,560 --> 00:08:04,040 Speaker 6: early to the president with a clean increase in the 155 00:08:04,080 --> 00:08:07,080 Speaker 6: debt limit, the President can't give a nod to anything 156 00:08:07,120 --> 00:08:10,400 Speaker 6: near the scale of spending cuts proposed by McCarthy because 157 00:08:10,400 --> 00:08:13,000 Speaker 6: they would undercut much of his domestic agenda and lose 158 00:08:13,000 --> 00:08:16,480 Speaker 6: his political base. So I'm afraid market stress is still 159 00:08:16,520 --> 00:08:20,000 Speaker 6: what's needed to create cover for face saving compromise. And 160 00:08:20,040 --> 00:08:23,000 Speaker 6: that's why perversely market complacency asty. 161 00:08:24,400 --> 00:08:26,640 Speaker 1: You and Jeane Spirling have been very good at this 162 00:08:26,720 --> 00:08:29,920 Speaker 1: of trying to link this policy dynamic into Wall Street. 163 00:08:30,000 --> 00:08:35,080 Speaker 1: As Lisa mentioned earlier, Wall Street seems soundly removed from 164 00:08:35,080 --> 00:08:38,960 Speaker 1: this discussion, this debate. Are they correct on that, to 165 00:08:39,080 --> 00:08:42,680 Speaker 1: be removed to not worry about this debt crisis? 166 00:08:44,120 --> 00:08:47,200 Speaker 6: You know, look, it's muscle memory, and that muscle memory 167 00:08:47,240 --> 00:08:51,000 Speaker 6: is dangerous because the context has changed pretty dramatically from 168 00:08:51,040 --> 00:08:53,720 Speaker 6: the last time we had a serious flirtation with default 169 00:08:53,720 --> 00:08:57,479 Speaker 6: back in twenty eleven. For one, Congress is as polarized 170 00:08:57,480 --> 00:09:00,679 Speaker 6: as it's been in our country's history. Second, you know 171 00:09:00,720 --> 00:09:03,640 Speaker 6: we are we are trying to roll over a debt 172 00:09:03,640 --> 00:09:05,679 Speaker 6: stock that's twice as large as it was in twenty 173 00:09:05,679 --> 00:09:08,840 Speaker 6: eleven three four, and holdings of treasuries are up to 174 00:09:08,880 --> 00:09:11,960 Speaker 6: seven trillion dollars. That's almost three trillion higher than what 175 00:09:12,000 --> 00:09:15,040 Speaker 6: we had in twenty eleven. Or back in twenty eleven, 176 00:09:15,080 --> 00:09:18,560 Speaker 6: Europe was in an existential debt crisis. China have yet 177 00:09:18,600 --> 00:09:22,679 Speaker 6: to lure serious influence were abroad. Digital assets had yet 178 00:09:22,720 --> 00:09:26,520 Speaker 6: to go mainstream. There were no alternatives to dollars. That's changed. 179 00:09:26,559 --> 00:09:29,839 Speaker 6: And lastly, and I think most importantly, we're currently the 180 00:09:29,960 --> 00:09:33,160 Speaker 6: US spearheading the most severe economic sanctions campaign against the 181 00:09:33,240 --> 00:09:37,559 Speaker 6: G twenty country and financial history that creates incentives, geopolitical 182 00:09:37,559 --> 00:09:41,800 Speaker 6: incentives for countries to hedge. The debt ceiling just needlessly 183 00:09:41,800 --> 00:09:46,240 Speaker 6: adds impetus to those incentives at a time of geopolitical peril. 184 00:09:47,040 --> 00:09:49,560 Speaker 4: Why do you think, Dalli, from your vantage point of 185 00:09:49,640 --> 00:09:51,640 Speaker 4: having worked at the White House, of having worked at 186 00:09:51,640 --> 00:09:53,520 Speaker 4: the Treasury, of having worked at the Fed, all of 187 00:09:53,559 --> 00:09:57,160 Speaker 4: these different agencies, why do you think things have gotten 188 00:09:57,240 --> 00:09:59,319 Speaker 4: so dysfunctional in Washington, d C. 189 00:10:01,280 --> 00:10:03,760 Speaker 6: Yeah, I mean, that's ceiling really is just symptomatic of 190 00:10:03,800 --> 00:10:07,280 Speaker 6: that polarization, Lisa, I mean, I think it's derivative about 191 00:10:07,280 --> 00:10:11,200 Speaker 6: the atomization of the media, extreme levels of inequality and 192 00:10:11,320 --> 00:10:15,080 Speaker 6: technology that allows political movements to gain scale at speeds 193 00:10:15,080 --> 00:10:18,559 Speaker 6: that we haven't seen before. And look, now we're on 194 00:10:18,679 --> 00:10:21,040 Speaker 6: the cost of doing something that great powers just don't do. 195 00:10:21,679 --> 00:10:24,280 Speaker 6: They don't default, they don't talk about default, they don't 196 00:10:24,320 --> 00:10:26,839 Speaker 6: think about default. And your measure of greatness is when 197 00:10:26,880 --> 00:10:29,360 Speaker 6: no country questions whether you would ever do so. Some 198 00:10:29,400 --> 00:10:30,960 Speaker 6: people brought us to this point. 199 00:10:31,120 --> 00:10:33,240 Speaker 4: Some people would say, de leip that there are already 200 00:10:33,240 --> 00:10:36,520 Speaker 4: our economic consequences to even having this discussion in such 201 00:10:36,520 --> 00:10:38,320 Speaker 4: real time, And given the fact that it does have 202 00:10:38,360 --> 00:10:40,960 Speaker 4: a different kind of more polarized nature to it, what 203 00:10:41,120 --> 00:10:43,600 Speaker 4: are the longer term impacts, even if there is a 204 00:10:43,600 --> 00:10:46,480 Speaker 4: solution that is found the last minute, when the market 205 00:10:46,520 --> 00:10:50,080 Speaker 4: finally wakes up and applies the real pressure that Washington's 206 00:10:50,120 --> 00:10:50,600 Speaker 4: waiting for. 207 00:10:51,720 --> 00:10:55,000 Speaker 6: Lisa dollar primacy is a national treasure. It allows us 208 00:10:55,040 --> 00:10:58,439 Speaker 6: to fund our government at twenty to fifty basis points 209 00:10:58,520 --> 00:11:01,440 Speaker 6: cheaper than otherwise would that as up to real money 210 00:11:01,440 --> 00:11:03,800 Speaker 6: one hundred and fifty billion dollars for every fifty basis 211 00:11:03,840 --> 00:11:07,160 Speaker 6: points on treasure yields. It allows us to absorb a 212 00:11:07,200 --> 00:11:09,880 Speaker 6: shock like the twenty eleven downgrade of our credit rating, 213 00:11:10,320 --> 00:11:12,280 Speaker 6: and it allows us to deliver a shock. All of 214 00:11:12,280 --> 00:11:14,440 Speaker 6: that is being put at risk in terms of the 215 00:11:14,440 --> 00:11:17,200 Speaker 6: long term scarring effects of this type of debate. Just remember, 216 00:11:17,720 --> 00:11:20,520 Speaker 6: dollar primacy is nothing more than a network. Okay, it's 217 00:11:20,559 --> 00:11:24,480 Speaker 6: rooted in trust and inertia and an assumed lack of alternatives. 218 00:11:24,520 --> 00:11:28,160 Speaker 6: But every network, whether it's in biology or ecology or 219 00:11:28,160 --> 00:11:31,559 Speaker 6: in finance, they have tipping points. They're usually psychological tipping 220 00:11:31,559 --> 00:11:34,960 Speaker 6: points that you can't see in advance. And we're now 221 00:11:35,080 --> 00:11:37,760 Speaker 6: pushing ourselves towards what I would consider to be a 222 00:11:37,840 --> 00:11:40,640 Speaker 6: very dangerous place the closer we get to the X state. 223 00:11:40,920 --> 00:11:42,120 Speaker 6: So this is very serious. 224 00:11:42,200 --> 00:11:43,040 Speaker 7: A lot is at stake. 225 00:11:43,440 --> 00:11:45,400 Speaker 4: Well, this is actually a really important point that a 226 00:11:45,400 --> 00:11:48,360 Speaker 4: lot of people argue against, saying that the loss of 227 00:11:48,400 --> 00:11:51,679 Speaker 4: the dollars supremacy as the global currency has been overstated. 228 00:11:51,720 --> 00:11:55,480 Speaker 4: The death of the dollar has been perhaps overwrought. However, 229 00:11:55,679 --> 00:11:58,880 Speaker 4: other people like yourself saying, actually it's becoming much more real. 230 00:11:58,960 --> 00:12:01,600 Speaker 4: What are you looking for in the data to show 231 00:12:01,640 --> 00:12:05,040 Speaker 4: that that is actually that what is transpiring, that people 232 00:12:05,080 --> 00:12:08,400 Speaker 4: are moving away from the dollar is the main dominant 233 00:12:08,440 --> 00:12:09,560 Speaker 4: currency of exchange. 234 00:12:10,280 --> 00:12:11,880 Speaker 6: You're not going to see it on paper. I mean 235 00:12:11,880 --> 00:12:14,440 Speaker 6: the measure of privacy is really you use the dollar 236 00:12:14,480 --> 00:12:16,960 Speaker 6: to buyer sell stuff? Do you use it to borrow money? 237 00:12:17,960 --> 00:12:21,520 Speaker 6: And do you use it to price transactions? And on paper, 238 00:12:21,559 --> 00:12:24,000 Speaker 6: there's nothing to see here. This is a tail risk. 239 00:12:24,280 --> 00:12:28,600 Speaker 6: But we're gambling with an exorbitant privilege that has incalculable benefits, 240 00:12:28,920 --> 00:12:30,680 Speaker 6: and so it's the kind of tail risk that you 241 00:12:30,679 --> 00:12:32,559 Speaker 6: should never take. That's the point. 242 00:12:34,320 --> 00:12:36,400 Speaker 1: I look, dullypitt this and it's a history which you 243 00:12:36,480 --> 00:12:41,000 Speaker 1: studied at Carolina and also up at MIT, the ageless 244 00:12:41,080 --> 00:12:44,120 Speaker 1: history of our debt caution. I'm going to call it 245 00:12:44,240 --> 00:12:48,960 Speaker 1: our almost debt religiosity. What do the people where they say, 246 00:12:49,480 --> 00:12:51,400 Speaker 1: we got to get rid of the debt. It's just 247 00:12:51,480 --> 00:12:55,200 Speaker 1: like Apple's corporate debt. Kyle Browner and others wrote a 248 00:12:55,200 --> 00:12:58,640 Speaker 1: book forty years ago saying, no, it's not. How do 249 00:12:58,679 --> 00:13:03,040 Speaker 1: you respond to people that viscerally feel this government debt 250 00:13:03,240 --> 00:13:03,800 Speaker 1: is bad? 251 00:13:04,640 --> 00:13:08,280 Speaker 6: Yeah, this is a legitimate question, Tom, I don't think 252 00:13:08,280 --> 00:13:11,240 Speaker 6: we're in a crisis. However, so long as our nominal 253 00:13:11,280 --> 00:13:14,040 Speaker 6: GDP growth is higher than the average interest we pay, 254 00:13:14,600 --> 00:13:18,160 Speaker 6: the math of debt sustainability improves over time, and right now, 255 00:13:18,160 --> 00:13:21,000 Speaker 6: that's the case, our nominal GDP growth year every year 256 00:13:21,160 --> 00:13:23,880 Speaker 6: is about seven percent. It's actually been in the double 257 00:13:23,920 --> 00:13:26,240 Speaker 6: digits with much of the past two years. The way 258 00:13:26,280 --> 00:13:28,320 Speaker 6: that average interest rate in our public debt is two 259 00:13:28,360 --> 00:13:31,800 Speaker 6: point six percent. Now for that to be sustained, of course, 260 00:13:31,880 --> 00:13:34,640 Speaker 6: the market has to believe the money we're borrowing will 261 00:13:34,679 --> 00:13:37,320 Speaker 6: be put to productive use. That's the key question, and 262 00:13:37,559 --> 00:13:40,359 Speaker 6: I think look that argues for the kind of investments 263 00:13:40,760 --> 00:13:43,200 Speaker 6: that the public sector is making, where the private sector 264 00:13:43,240 --> 00:13:47,840 Speaker 6: is underinvested, R and D infrastructure, technology programs that grow 265 00:13:47,840 --> 00:13:51,320 Speaker 6: a workforce make them more productive. That's really the measure 266 00:13:51,360 --> 00:13:54,120 Speaker 6: of whether the debt that we're borrowing is going to 267 00:13:54,280 --> 00:13:57,000 Speaker 6: raise our nominal GDP growth to levels that can sustain 268 00:13:57,160 --> 00:13:58,439 Speaker 6: arising interest rate costs. 269 00:13:58,520 --> 00:14:02,880 Speaker 1: And with that beautiful explanation good enough for Olivia Blanchard 270 00:14:02,920 --> 00:14:06,360 Speaker 1: to Joseph Stieglitz as they've studied this as well. Wrapped 271 00:14:06,360 --> 00:14:10,080 Speaker 1: around our start and the rest, the trust mechanism is 272 00:14:10,080 --> 00:14:14,439 Speaker 1: that government will put it into good projects. Can't that 273 00:14:14,559 --> 00:14:19,240 Speaker 1: be discussed tomorrow among a fractured polity in Washington? 274 00:14:20,120 --> 00:14:22,120 Speaker 6: It can, but not with a gun to our head. 275 00:14:22,800 --> 00:14:25,560 Speaker 6: The consequence of not reaching agreement can't be we're going 276 00:14:25,640 --> 00:14:29,280 Speaker 6: to burn the house down. We absolutely should have a 277 00:14:29,320 --> 00:14:32,040 Speaker 6: discussion about spending in revenue levels. How are we going 278 00:14:32,120 --> 00:14:34,560 Speaker 6: to use our resources to solve structural problems that the 279 00:14:34,560 --> 00:14:39,320 Speaker 6: private sector will solve by itself, Extreme inequality, social disparity, vulnerabilities, 280 00:14:39,360 --> 00:14:42,480 Speaker 6: are supply chains, the climate crisis, All of that should 281 00:14:42,480 --> 00:14:44,280 Speaker 6: be on the table. The point is, how do we 282 00:14:44,360 --> 00:14:46,960 Speaker 6: have that discussion in a way that doesn't make us 283 00:14:46,960 --> 00:14:49,880 Speaker 6: a global spectacle. That's the question. 284 00:14:50,560 --> 00:14:54,840 Speaker 1: This has been wonderful. Dully's saying my most favorite discussion 285 00:14:54,920 --> 00:14:57,840 Speaker 1: so far in this debt idiocy. He's a pGEM fixed income. 286 00:15:02,200 --> 00:15:04,520 Speaker 5: Well, it's around a table. David Libovitz, the Global Market 287 00:15:04,560 --> 00:15:07,680 Speaker 5: Strategistic JP, Morgan Asset Management, David Good, Mornings here morning. 288 00:15:07,920 --> 00:15:09,920 Speaker 5: How long before we're talking about a June hike again? 289 00:15:10,240 --> 00:15:13,040 Speaker 7: So it's interesting and the point that I think you 290 00:15:13,080 --> 00:15:15,720 Speaker 7: all were discussing prior to the break, I think is 291 00:15:15,760 --> 00:15:19,040 Speaker 7: really what investors need to focus on, which is everybody's 292 00:15:19,080 --> 00:15:21,680 Speaker 7: expecting that the FED is done. Everybody's expecting that the 293 00:15:21,680 --> 00:15:23,560 Speaker 7: FED is going to start cutting rates at some point 294 00:15:23,560 --> 00:15:25,560 Speaker 7: in the back half of this year. If you think 295 00:15:25,600 --> 00:15:27,960 Speaker 7: about where the risk lies relative to that view, it 296 00:15:28,040 --> 00:15:30,160 Speaker 7: very much lies to the upside, right, So the risk 297 00:15:30,200 --> 00:15:32,440 Speaker 7: here is that people find themselves flat footed. I would 298 00:15:32,440 --> 00:15:34,320 Speaker 7: agree with you on the inflation point. The rate of 299 00:15:34,360 --> 00:15:37,760 Speaker 7: inflation is entirely too high, not to mention Pal's favorite 300 00:15:37,800 --> 00:15:41,200 Speaker 7: indicator continues to trend higher, right, which nobody's really talking about. 301 00:15:41,240 --> 00:15:44,320 Speaker 7: And so you know, is the FED gonna do four, five, 302 00:15:44,440 --> 00:15:47,320 Speaker 7: six more twenty five basis point hikes? Probably not. But 303 00:15:47,320 --> 00:15:49,560 Speaker 7: if you're thinking about a portfolio and you're thinking about 304 00:15:49,560 --> 00:15:51,960 Speaker 7: what could give the market jitters going forward, I think 305 00:15:51,960 --> 00:15:54,160 Speaker 7: it very much lies in that upside risk about around 306 00:15:54,200 --> 00:15:56,920 Speaker 7: the Fed doing more than the market expects. That could 307 00:15:56,960 --> 00:15:58,920 Speaker 7: even be staying on hold given the way futures a 308 00:15:58,960 --> 00:16:00,960 Speaker 7: price today. But again, very much view of the risk as 309 00:16:00,960 --> 00:16:02,000 Speaker 7: being to the upside. 310 00:16:02,120 --> 00:16:04,400 Speaker 5: Equity data ship, what does it come from? If that's 311 00:16:04,400 --> 00:16:05,080 Speaker 5: your backdrop? 312 00:16:05,480 --> 00:16:08,040 Speaker 7: So I think, you know, the interesting thing that we've 313 00:16:08,080 --> 00:16:10,280 Speaker 7: spent a lot of time talking to clients about is, 314 00:16:10,320 --> 00:16:12,200 Speaker 7: you know, back in March when when we started to 315 00:16:12,240 --> 00:16:15,640 Speaker 7: see stress in the banking system, why aren't equities going down? 316 00:16:15,680 --> 00:16:17,920 Speaker 7: And the answer was the ten year fil fifty basis 317 00:16:17,920 --> 00:16:19,840 Speaker 7: points and that boosted all of the tech names, and 318 00:16:20,160 --> 00:16:22,200 Speaker 7: that allowed the s and P. Five hundred to keep 319 00:16:22,240 --> 00:16:24,560 Speaker 7: its head above water. I don't think you're going to 320 00:16:24,600 --> 00:16:28,000 Speaker 7: see the market, the market broadly do particularly well in 321 00:16:28,000 --> 00:16:30,400 Speaker 7: that environment because the big heavyweights in the market are 322 00:16:30,440 --> 00:16:33,120 Speaker 7: just too sensitive to the overall movement of rates, and 323 00:16:33,200 --> 00:16:35,120 Speaker 7: so I think what you end up seeing is kind 324 00:16:35,160 --> 00:16:38,200 Speaker 7: of a nowhere market right where the average stock arguably 325 00:16:38,200 --> 00:16:42,120 Speaker 7: starts doing a little bit better, maybe some utilities, healthcare staples, 326 00:16:42,160 --> 00:16:43,920 Speaker 7: but you know, tech's not going to lead us out 327 00:16:43,920 --> 00:16:45,360 Speaker 7: of this hole if the risk to rates is to 328 00:16:45,360 --> 00:16:45,800 Speaker 7: the upside. 329 00:16:45,920 --> 00:16:47,840 Speaker 1: I want you to talk about this because you're going 330 00:16:47,880 --> 00:16:51,000 Speaker 1: into institutional and high network people and they're scared. You 331 00:16:51,040 --> 00:16:53,800 Speaker 1: know what. The bottom line here is the rest of 332 00:16:53,800 --> 00:16:56,160 Speaker 1: the market is witnessed by the SPX has come out 333 00:16:56,160 --> 00:16:58,880 Speaker 1: of a brutal bear market in October and it's made 334 00:16:58,960 --> 00:17:02,240 Speaker 1: back a huge part of that loss. I think that's 335 00:17:02,320 --> 00:17:06,760 Speaker 1: underplayed by people addicted to covering Apple every fifteen minutes breathless. 336 00:17:06,960 --> 00:17:08,960 Speaker 1: Do you look at this as the bottom of a 337 00:17:09,040 --> 00:17:12,480 Speaker 1: market in October and we're climbing out of it into 338 00:17:12,520 --> 00:17:15,679 Speaker 1: a positive return for everything else besides Apple. 339 00:17:16,200 --> 00:17:18,199 Speaker 7: So I think at the end of the day, the 340 00:17:18,280 --> 00:17:21,800 Speaker 7: problem with saying that October was the low. It reminds 341 00:17:21,840 --> 00:17:23,560 Speaker 7: me of people telling me that June was the low 342 00:17:23,840 --> 00:17:25,560 Speaker 7: right in the middle of last year, and we had 343 00:17:25,560 --> 00:17:28,800 Speaker 7: priced it in recession because the median decline excuse me, 344 00:17:28,800 --> 00:17:31,560 Speaker 7: as twenty five percent peaked to troth and we did 345 00:17:31,560 --> 00:17:33,359 Speaker 7: that right, So we must have priced it in. But 346 00:17:33,840 --> 00:17:35,879 Speaker 7: let's talk about the growth data. Let's talk about the 347 00:17:35,960 --> 00:17:38,000 Speaker 7: jobs report. I mean, this is not an economy that 348 00:17:38,080 --> 00:17:40,760 Speaker 7: is anywhere close to being in recession in our view 349 00:17:40,800 --> 00:17:42,800 Speaker 7: when you look across the board. I don't think we 350 00:17:42,880 --> 00:17:46,160 Speaker 7: necessarily set a new low, but we could arguably retest 351 00:17:46,280 --> 00:17:48,560 Speaker 7: those existing lows at some time before the end of 352 00:17:48,560 --> 00:17:48,840 Speaker 7: the year. 353 00:17:48,960 --> 00:17:50,440 Speaker 4: So it's good news good news again. 354 00:17:50,680 --> 00:17:53,760 Speaker 7: I think good news right now. It's an interesting question 355 00:17:53,800 --> 00:17:56,720 Speaker 7: because the market has shifted its focus away from inflation 356 00:17:56,880 --> 00:17:59,480 Speaker 7: and back to growth, and on the one hand, that's 357 00:17:59,480 --> 00:18:02,640 Speaker 7: allowed the negative correlation between stocks and bonds to take 358 00:18:02,680 --> 00:18:05,520 Speaker 7: hold again, and so market performance this year has very 359 00:18:05,560 --> 00:18:07,800 Speaker 7: much been better. But I worry that if the inflation 360 00:18:07,920 --> 00:18:11,119 Speaker 7: data doesn't cool off, then good news becomes bad news 361 00:18:11,200 --> 00:18:12,520 Speaker 7: because it means that the FED is going to have 362 00:18:12,560 --> 00:18:14,359 Speaker 7: to do more. So we're in this kind of weird, 363 00:18:14,480 --> 00:18:17,640 Speaker 7: nebulous state today. Where it just doesn't seem to us 364 00:18:17,680 --> 00:18:20,760 Speaker 7: like investors broadly are accurately pricing in the risks around 365 00:18:20,760 --> 00:18:23,000 Speaker 7: monetary policy that we see on the horizon. 366 00:18:23,240 --> 00:18:26,119 Speaker 4: If there is another bank failure or another bank jitter 367 00:18:26,320 --> 00:18:30,040 Speaker 4: that emerges, does the data matter about inflation or do 368 00:18:30,119 --> 00:18:32,000 Speaker 4: people basically discount the FED no matter what. 369 00:18:32,520 --> 00:18:34,360 Speaker 7: So I think that that's the problem, and that's what's 370 00:18:34,359 --> 00:18:36,600 Speaker 7: happening today, is that people are saying, look what's going 371 00:18:36,640 --> 00:18:38,960 Speaker 7: on in the banking space. You know, it looks and 372 00:18:39,040 --> 00:18:41,560 Speaker 7: feels and smells like something we may have seen before. 373 00:18:41,960 --> 00:18:44,000 Speaker 7: The Fed's going to have to go on hold. But 374 00:18:44,280 --> 00:18:46,760 Speaker 7: you know, again, I would make the point that banks 375 00:18:46,800 --> 00:18:49,760 Speaker 7: fail every single year, right, it's just not usually the 376 00:18:49,800 --> 00:18:52,520 Speaker 7: sixteenth largest bank by assets, And that's what really caught 377 00:18:52,520 --> 00:18:54,680 Speaker 7: people's attention. And so, you know, I think we could 378 00:18:54,680 --> 00:18:58,560 Speaker 7: see continued stress in the banking system broadly, but very 379 00:18:58,640 --> 00:19:00,600 Speaker 7: much at the lower end, as we work through some 380 00:19:00,640 --> 00:19:02,879 Speaker 7: of these COVID excesses and we work through the duration 381 00:19:03,000 --> 00:19:06,000 Speaker 7: mismatch that we know exists today. I'm not sure that 382 00:19:06,000 --> 00:19:07,720 Speaker 7: we're out of the woods, but I do think that 383 00:19:07,760 --> 00:19:09,360 Speaker 7: the big booms have probably been heard. 384 00:19:09,400 --> 00:19:11,119 Speaker 1: I don't want to get in trouble with mister Diamond. 385 00:19:11,119 --> 00:19:13,560 Speaker 1: He hangs on your earvy word. But the bottom line is, 386 00:19:13,600 --> 00:19:15,399 Speaker 1: are we going to see a banking roll up in 387 00:19:15,400 --> 00:19:17,960 Speaker 1: this country? Keep JP Morgan out of it. Are we 388 00:19:17,960 --> 00:19:20,160 Speaker 1: going to see a banking roll up in this country? 389 00:19:20,359 --> 00:19:22,439 Speaker 7: Well? I think what's interesting that really ties back to 390 00:19:22,480 --> 00:19:24,639 Speaker 7: the structure of the US banking system right, which is 391 00:19:24,720 --> 00:19:27,520 Speaker 7: much more fragmented than what you see in other parts 392 00:19:27,520 --> 00:19:30,480 Speaker 7: of the world, and so arguably that caters more to 393 00:19:30,840 --> 00:19:32,639 Speaker 7: M and A activity than would be the case in 394 00:19:32,680 --> 00:19:35,000 Speaker 7: some place like Europe. I think it would be premature 395 00:19:35,040 --> 00:19:37,840 Speaker 7: to say that we've seen the end of consolidation in banking. 396 00:19:37,880 --> 00:19:40,320 Speaker 1: He read. That's like when Powell's and his press conference 397 00:19:40,400 --> 00:19:43,720 Speaker 1: reading off the piece of paper David did that absolutely 398 00:19:43,800 --> 00:19:44,239 Speaker 1: nailed them. 399 00:19:44,440 --> 00:19:47,160 Speaker 5: Please you mentioned a bank failures and how much more 400 00:19:47,200 --> 00:19:50,200 Speaker 5: regular they are related to how much they get talked about. 401 00:19:50,240 --> 00:19:52,439 Speaker 5: The FDIC has got a nice little table. You can 402 00:19:52,480 --> 00:19:55,760 Speaker 5: access it easily on Google. I just did twenty seventeen 403 00:19:55,840 --> 00:19:58,920 Speaker 5: eight banks in America failed. I don't remember talking about 404 00:19:58,920 --> 00:20:01,959 Speaker 5: in twenty seventeen, twenty twenty four went under, twenty nineteen 405 00:20:02,040 --> 00:20:04,760 Speaker 5: four went under. There's a reason, and you've pointed out 406 00:20:05,000 --> 00:20:07,720 Speaker 5: they're that much bigger this time around, and there seems 407 00:20:07,760 --> 00:20:10,800 Speaker 5: to be a feeling that perhaps that can bleed into 408 00:20:11,240 --> 00:20:13,399 Speaker 5: and towards a credit crunch. More broadly, do you have 409 00:20:13,440 --> 00:20:16,080 Speaker 5: those fears that we do get that credit crunch ultimately? 410 00:20:16,400 --> 00:20:18,360 Speaker 5: And that's why you shouldn't be pricing in high up 411 00:20:18,560 --> 00:20:20,680 Speaker 5: higher rates off the back of this robust data, because 412 00:20:20,760 --> 00:20:22,680 Speaker 5: ultimately the banks are going to take care of business. 413 00:20:23,240 --> 00:20:26,280 Speaker 7: So I think that you do get a further tightening 414 00:20:26,320 --> 00:20:28,680 Speaker 7: and credit conditions. But I think the mistake that people 415 00:20:28,760 --> 00:20:31,400 Speaker 7: are making is they hear the word bank and they 416 00:20:31,400 --> 00:20:34,320 Speaker 7: think two thousand and eight, and structurally, this is a 417 00:20:34,520 --> 00:20:37,000 Speaker 7: very different issue than what we were dealing with fifteen 418 00:20:37,080 --> 00:20:39,800 Speaker 7: years ago. And so could the market, right, we're back 419 00:20:39,840 --> 00:20:41,920 Speaker 7: to the market doing the Fed's job for them. Could 420 00:20:41,960 --> 00:20:44,440 Speaker 7: the market do some additional tightening and maybe that means 421 00:20:44,480 --> 00:20:47,720 Speaker 7: the FED doesn't need to continue hiking rates. Absolutely, I 422 00:20:47,760 --> 00:20:50,439 Speaker 7: wouldn't be surprised to see that occur. You're actually already 423 00:20:50,480 --> 00:20:52,320 Speaker 7: seeing right in some of the more cyclical parts of 424 00:20:52,359 --> 00:20:55,840 Speaker 7: the economy, things like manufacturing cracks begin to form. But 425 00:20:56,560 --> 00:20:59,320 Speaker 7: is the banking situation in general going to you know, 426 00:20:59,359 --> 00:21:01,280 Speaker 7: get a FED, get the FED to do a complete 427 00:21:01,280 --> 00:21:03,600 Speaker 7: about face. I think that that's a bit of a risk. 428 00:21:03,640 --> 00:21:06,800 Speaker 7: I think, if anything, it speeds up any potential rate 429 00:21:06,840 --> 00:21:10,040 Speaker 7: cuts later on this year. But I still think summertime 430 00:21:10,119 --> 00:21:12,800 Speaker 7: for you know, easy monetary policy may be a little 431 00:21:12,800 --> 00:21:13,400 Speaker 7: bit premature. 432 00:21:13,520 --> 00:21:15,879 Speaker 5: David appreciate it. Thank you, buddy, David Levitz, the of 433 00:21:15,960 --> 00:21:17,360 Speaker 5: jp MULKAN Asset Management. 434 00:21:27,600 --> 00:21:30,200 Speaker 1: It's a really important time to talk to so Broader 435 00:21:30,280 --> 00:21:32,880 Speaker 1: a job ahead of US rate strategy at sock Gen 436 00:21:33,440 --> 00:21:36,720 Speaker 1: over the silence over the weekend off of a shocking 437 00:21:36,800 --> 00:21:40,240 Speaker 1: jobs report and maybe a reset of what interest rates 438 00:21:40,240 --> 00:21:43,520 Speaker 1: will do as the thermometer of the system. Sobrada, did 439 00:21:43,560 --> 00:21:46,440 Speaker 1: you adjust? If I say to you, where's the ten 440 00:21:46,520 --> 00:21:50,320 Speaker 1: year yield twelve months out? Is this an adjustable number 441 00:21:50,440 --> 00:21:54,399 Speaker 1: or is it one big sock Gen guess No. 442 00:21:54,560 --> 00:21:58,879 Speaker 8: I think we've kept our forecast relatively stable. You know, 443 00:21:58,920 --> 00:22:01,080 Speaker 8: we've seen sort of this up and down motion in 444 00:22:01,160 --> 00:22:03,480 Speaker 8: the in the data week after week. You know, on 445 00:22:03,520 --> 00:22:06,320 Speaker 8: the one side you have the digional banking crisis. On 446 00:22:06,320 --> 00:22:10,119 Speaker 8: the other side you have strong fundamentals. But if you 447 00:22:10,160 --> 00:22:14,360 Speaker 8: look at the bond market broadly speaking, from early March 448 00:22:14,560 --> 00:22:18,760 Speaker 8: to now, really nothing has moved much. The two year 449 00:22:18,920 --> 00:22:23,040 Speaker 8: has stayed around four percent. Broadly speaking, the tenure has 450 00:22:23,080 --> 00:22:27,120 Speaker 8: stayed between three forty and three sixty, and the two 451 00:22:27,160 --> 00:22:30,639 Speaker 8: Stents curve has been anywhere around negative fifty five negative 452 00:22:30,640 --> 00:22:33,280 Speaker 8: fifty basis points. So it's been a lot of movement, 453 00:22:33,320 --> 00:22:37,040 Speaker 8: but within a very very narrow rage because the market 454 00:22:37,200 --> 00:22:41,199 Speaker 8: really lacks clear conviction on where we go from here. 455 00:22:41,640 --> 00:22:44,679 Speaker 8: But that said, I think that risks continue to be 456 00:22:44,800 --> 00:22:48,480 Speaker 8: skewed to the downside for years. If we do get 457 00:22:48,520 --> 00:22:51,280 Speaker 8: strong data, the market's going to dismiss it. If we 458 00:22:51,320 --> 00:22:52,920 Speaker 8: do get weak data, I think you want to see 459 00:22:52,920 --> 00:22:55,080 Speaker 8: a little bit more of an outsized move lower in yields. 460 00:22:55,119 --> 00:22:57,120 Speaker 1: You went right where I want to go, Sobrada, If 461 00:22:57,119 --> 00:23:00,960 Speaker 1: I look at the Bloomberg Total Return Aggregate all in index, 462 00:23:01,040 --> 00:23:04,679 Speaker 1: it's a price index, folks, and it's basically a straight line. 463 00:23:04,720 --> 00:23:07,720 Speaker 1: I think Bill Gross, Muhammad al Arian's success at PIMCO 464 00:23:08,280 --> 00:23:11,760 Speaker 1: for fifteen years and then, as you know, Sobroada down 465 00:23:11,840 --> 00:23:15,119 Speaker 1: seventeen percent and the mother of all all in bond 466 00:23:15,160 --> 00:23:18,720 Speaker 1: bear markets. And yes there's been a bounce, but we 467 00:23:18,800 --> 00:23:21,600 Speaker 1: don't talk about it like we talk about stock bounces. 468 00:23:21,920 --> 00:23:25,480 Speaker 1: Are we bouncing off a bond bear market? To something constructive. 469 00:23:26,960 --> 00:23:29,919 Speaker 8: Yeah, it certainly seems that way. Yels do seem like 470 00:23:29,960 --> 00:23:34,679 Speaker 8: they peaked around four percent and tens in the second 471 00:23:34,680 --> 00:23:37,960 Speaker 8: in the so she said fourth quarter of last year, 472 00:23:38,000 --> 00:23:40,879 Speaker 8: and the trajectory seems to be towards lower yels. I 473 00:23:40,880 --> 00:23:43,520 Speaker 8: think that this time around, the key difference is that 474 00:23:43,560 --> 00:23:46,200 Speaker 8: we might you know, FED funds rate nobody's expecting Fed 475 00:23:46,240 --> 00:23:48,800 Speaker 8: FUNDRAI to get back to the zero lower bound, and 476 00:23:49,080 --> 00:23:51,119 Speaker 8: the decline in years from her on is going to 477 00:23:51,160 --> 00:23:53,560 Speaker 8: be much more modest and gradual. You know, even in 478 00:23:53,600 --> 00:23:56,040 Speaker 8: our own forecast we have teny years only getting to 479 00:23:56,080 --> 00:23:58,639 Speaker 8: three and a quarter percent by the end of the year. Why, 480 00:23:58,720 --> 00:24:00,920 Speaker 8: because of the fact that you have blown will bond 481 00:24:00,960 --> 00:24:04,199 Speaker 8: yields continue to rise and the easyb is poised to 482 00:24:04,440 --> 00:24:09,800 Speaker 8: hike more. The Bank of Japan could widen its YCC 483 00:24:10,040 --> 00:24:13,280 Speaker 8: band at the June meeting. So in this sort of context, 484 00:24:13,280 --> 00:24:16,280 Speaker 8: and inflation is also high and sticky, it's going to 485 00:24:16,320 --> 00:24:18,719 Speaker 8: be very hard for a meaningful decline in yields from 486 00:24:18,760 --> 00:24:20,560 Speaker 8: here on as well. So it's going to be one 487 00:24:20,600 --> 00:24:23,880 Speaker 8: of those situations where yields remain range bound, we get 488 00:24:24,119 --> 00:24:27,360 Speaker 8: perhaps very weak data, we price down to a lower range, 489 00:24:27,520 --> 00:24:29,160 Speaker 8: But we're not going to go back to the zero 490 00:24:29,200 --> 00:24:31,879 Speaker 8: lower bound and fed funds and tenny yield decline is 491 00:24:31,880 --> 00:24:34,280 Speaker 8: going to be a lot more gradual than that context. 492 00:24:33,880 --> 00:24:36,359 Speaker 4: Supatra, What do people do when there's kind of this 493 00:24:36,400 --> 00:24:38,840 Speaker 4: tight trading range and you don't really expect it to 494 00:24:38,880 --> 00:24:41,679 Speaker 4: break out? I mean they basically just clock in for 495 00:24:41,720 --> 00:24:44,400 Speaker 4: an hour, making sure nothing changes, and then go take 496 00:24:44,440 --> 00:24:47,880 Speaker 4: a break. I'm serious, Like, I'm just wondering how sort 497 00:24:47,880 --> 00:24:50,679 Speaker 4: of sleepy things are out there as people realize that 498 00:24:50,720 --> 00:24:54,480 Speaker 4: there is no conviction and there's very little visibility to 499 00:24:54,520 --> 00:24:55,960 Speaker 4: get an edge at one side or another. 500 00:24:57,040 --> 00:25:00,880 Speaker 8: Well, you can trade the volatility within the range because 501 00:25:01,280 --> 00:25:04,000 Speaker 8: you've seen pretty sharp moves in gamma, so you probably 502 00:25:04,040 --> 00:25:06,000 Speaker 8: want to be long gamma in the balls to the 503 00:25:06,080 --> 00:25:09,360 Speaker 8: market and maybe pick up some returns there. But you're 504 00:25:09,400 --> 00:25:14,240 Speaker 8: absolutely right, there are no larger directional moves to uh 505 00:25:14,320 --> 00:25:16,920 Speaker 8: to to to play in this market given the fact 506 00:25:16,960 --> 00:25:20,879 Speaker 8: that years have been ranged bound and people are positioning 507 00:25:20,880 --> 00:25:23,840 Speaker 8: for the for the next leg lower in yields because 508 00:25:23,880 --> 00:25:27,160 Speaker 8: that seems to be the broader directional they given tightening 509 00:25:27,160 --> 00:25:29,520 Speaker 8: credit conditions. I mean, we know that policy works with 510 00:25:29,560 --> 00:25:32,160 Speaker 8: long and variable lags and the employment picture is going 511 00:25:32,160 --> 00:25:35,480 Speaker 8: to remain relatively strong until the bottom falls off. So 512 00:25:36,000 --> 00:25:38,360 Speaker 8: you're going to you're kind of positioning, if you will, 513 00:25:38,400 --> 00:25:40,960 Speaker 8: for that sort of scenario where you see a meaningful 514 00:25:41,000 --> 00:25:43,040 Speaker 8: store on in the second half, then you could see 515 00:25:43,040 --> 00:25:46,520 Speaker 8: that next leg lower in yields. But again, you know, 516 00:25:46,640 --> 00:25:49,640 Speaker 8: as you were speaking earlier in your program, I think 517 00:25:49,640 --> 00:25:53,119 Speaker 8: that the market is underpricing the risk of the FED 518 00:25:53,240 --> 00:25:55,040 Speaker 8: remaining on hold for the remainder of the year. We're 519 00:25:55,040 --> 00:25:57,760 Speaker 8: pressing in cuts for the second half of the year, 520 00:25:58,520 --> 00:26:00,600 Speaker 8: if you know, if we can get as a regional 521 00:26:00,640 --> 00:26:03,040 Speaker 8: banking crisis, I don't see any reason for the FED 522 00:26:03,080 --> 00:26:06,720 Speaker 8: to jump into cut cutting rates in the second half. 523 00:26:06,920 --> 00:26:09,240 Speaker 4: What would it take to not be past the regional 524 00:26:09,280 --> 00:26:11,880 Speaker 4: banking crisis? I mean, at a certain point people are 525 00:26:11,880 --> 00:26:14,800 Speaker 4: pricing in that it will persist. When do we signal 526 00:26:14,800 --> 00:26:15,440 Speaker 4: the all clear? 527 00:26:17,359 --> 00:26:20,080 Speaker 8: You know, that's a very very difficult, you know, question 528 00:26:20,200 --> 00:26:23,919 Speaker 8: to answer, because you're looking at an economy of haves 529 00:26:23,920 --> 00:26:26,560 Speaker 8: and have nots. The larger banks are doing, you know, 530 00:26:26,680 --> 00:26:31,879 Speaker 8: quite well. The smaller banks and the small business business areas, 531 00:26:31,920 --> 00:26:33,960 Speaker 8: if you will, are coming under a lot of pressure 532 00:26:34,240 --> 00:26:37,280 Speaker 8: because of the dependencies to regional banks. So this sort 533 00:26:37,280 --> 00:26:40,239 Speaker 8: of bifurcation is going to really muddy the picture, and 534 00:26:40,280 --> 00:26:43,040 Speaker 8: in some respects even that the Fed continues to say say, 535 00:26:43,160 --> 00:26:47,359 Speaker 8: say that the financial stability concerns they have tools to 536 00:26:47,400 --> 00:26:50,320 Speaker 8: deal with that, they have tools to deal with inflation. Uh. 537 00:26:50,400 --> 00:26:55,480 Speaker 8: These two uh, you know, uh, these two opposing factors 538 00:26:55,840 --> 00:26:57,879 Speaker 8: are going to make it very very difficult for the 539 00:26:57,920 --> 00:27:01,600 Speaker 8: Fed to really just policy in a meaningful way. They 540 00:27:01,640 --> 00:27:04,160 Speaker 8: can't cut rates for financial stability and they can't high 541 00:27:04,240 --> 00:27:07,600 Speaker 8: rates for inflation. So that's where policy gets very tricky. 542 00:27:07,800 --> 00:27:09,560 Speaker 8: They're probably going to be on hold for the remainder 543 00:27:09,560 --> 00:27:10,040 Speaker 8: of the year. 544 00:27:10,040 --> 00:27:11,679 Speaker 5: So badger. Never mind the Fed, We've got to talk 545 00:27:11,720 --> 00:27:15,600 Speaker 5: about the ECB. Eric Nilsen Uni Credit Fantastic note over 546 00:27:15,640 --> 00:27:17,879 Speaker 5: the weekend said this, My fear is that as the 547 00:27:17,960 --> 00:27:20,320 Speaker 5: lacked defects of a monetary policy tightening now begin to 548 00:27:20,400 --> 00:27:25,520 Speaker 5: hit the economies, the European underperformance will be longer deeper 549 00:27:25,720 --> 00:27:29,760 Speaker 5: than needed because of excessive monetary tightening. Savanta industrial production 550 00:27:29,840 --> 00:27:33,440 Speaker 5: in Germany this morning, downside, surprise factory orders last week, 551 00:27:33,720 --> 00:27:37,359 Speaker 5: ugly earnings from mess don't really scream that trade is 552 00:27:37,359 --> 00:27:39,960 Speaker 5: good right now, Sabantra, do you think is a real 553 00:27:40,040 --> 00:27:42,160 Speaker 5: risk here that perhaps the ECB, relative to the FED, 554 00:27:42,240 --> 00:27:44,399 Speaker 5: is the central bank most at risk of making a 555 00:27:44,400 --> 00:27:46,080 Speaker 5: policy mistake at the moment. 556 00:27:47,160 --> 00:27:47,720 Speaker 3: Well, that is. 557 00:27:47,680 --> 00:27:50,560 Speaker 8: Always a problem when you're following the FED and not 558 00:27:50,760 --> 00:27:53,399 Speaker 8: leading the FED in an inflationary environment or a hiking 559 00:27:53,400 --> 00:27:56,880 Speaker 8: and randal. Broadly speaking, this almost always happens in every 560 00:27:57,040 --> 00:28:02,879 Speaker 8: cycle where the easy be you know, overshoots or delivers 561 00:28:03,160 --> 00:28:06,080 Speaker 8: more hikes because they're singularly focused on inflation but not 562 00:28:06,520 --> 00:28:09,120 Speaker 8: broader economic fundamentals, and then they have to play catch 563 00:28:09,200 --> 00:28:12,520 Speaker 8: up on the downside to the to the US. I 564 00:28:12,560 --> 00:28:15,240 Speaker 8: mean broadly speaking, you know, if anything, coming into this year, 565 00:28:15,320 --> 00:28:17,360 Speaker 8: I think a lot of people who are expecting the 566 00:28:17,400 --> 00:28:20,800 Speaker 8: European economy to go into a recession. The European economies 567 00:28:21,080 --> 00:28:23,440 Speaker 8: and UK even has done a lot better than people 568 00:28:23,480 --> 00:28:26,560 Speaker 8: had broadly expected. That said, a slow down is to 569 00:28:26,600 --> 00:28:29,480 Speaker 8: be expected given how aggressively the ECB has high grades. 570 00:28:29,880 --> 00:28:33,280 Speaker 8: So you know, the the trajectory I think ultimately will 571 00:28:33,320 --> 00:28:35,000 Speaker 8: be that the FED will have to pivot and the 572 00:28:35,000 --> 00:28:37,360 Speaker 8: ECB will have to pivot shortly thereafter. 573 00:28:37,800 --> 00:28:41,280 Speaker 5: So bat wonderful to get a perspective, as always, Sabato Chapa, 574 00:28:41,000 --> 00:28:43,240 Speaker 5: the of selk Gen. I'm the lightest on the FED 575 00:28:43,280 --> 00:28:43,800 Speaker 5: and the ECP. 576 00:28:48,120 --> 00:28:50,240 Speaker 1: This is a joy and we had a huge response 577 00:28:50,240 --> 00:28:53,840 Speaker 1: from Professor two has joined us a few weeks ago. 578 00:28:53,960 --> 00:28:57,880 Speaker 1: He is a Columbia University history professor, but far more 579 00:28:57,960 --> 00:29:00,800 Speaker 1: than that, was the Barton Biggs professor or at Yale 580 00:29:00,920 --> 00:29:06,320 Speaker 1: University and had to replace the giant Paul Kennedy very quickly. Adam, 581 00:29:06,400 --> 00:29:10,080 Speaker 1: what was it like trying to replace Paul Kennedy at Yale? 582 00:29:10,120 --> 00:29:11,240 Speaker 1: I can't imagine. 583 00:29:11,760 --> 00:29:14,680 Speaker 9: It was definitely a lesson in humility to absolutely honest. 584 00:29:14,720 --> 00:29:16,640 Speaker 9: I mean Paul is still going strong, it should be said, 585 00:29:16,680 --> 00:29:19,280 Speaker 9: because when I left, he came back and he's absolutely 586 00:29:19,760 --> 00:29:23,640 Speaker 9: on all cylinders. But yeah, a legend in his own lifetime. 587 00:29:23,760 --> 00:29:27,000 Speaker 1: And I'm Your essay in March is my early choice 588 00:29:27,000 --> 00:29:29,680 Speaker 1: for Essay of the Year in the Financial Times. You 589 00:29:29,760 --> 00:29:34,560 Speaker 1: beautifully walk through the trillion dollar rebalancing as we move 590 00:29:34,600 --> 00:29:38,880 Speaker 1: from pandemic to poly crisis. What is this poly crisis 591 00:29:38,920 --> 00:29:41,960 Speaker 1: for living? And when does the joy end? When do 592 00:29:42,040 --> 00:29:45,160 Speaker 1: we rebalance to some form of stability. 593 00:29:46,160 --> 00:29:48,320 Speaker 9: I think the absolutely first lesson, Tom is that we 594 00:29:48,400 --> 00:29:51,840 Speaker 9: probably don't. I think we actually have to abandon that 595 00:29:52,640 --> 00:29:55,520 Speaker 9: assumption that the best way to think about the world 596 00:29:55,600 --> 00:29:58,200 Speaker 9: is as a self equilibrating system that will move back 597 00:29:58,240 --> 00:30:01,280 Speaker 9: to normality. If you just look at the narrow space 598 00:30:01,320 --> 00:30:04,120 Speaker 9: of finance, does that seem like a reasonable description of 599 00:30:04,160 --> 00:30:07,120 Speaker 9: the world that we've been in since the two thousand 600 00:30:07,200 --> 00:30:09,440 Speaker 9: and eight crisis, or if you're talking about Japan since 601 00:30:09,480 --> 00:30:11,720 Speaker 9: the late nineteen nineties. It doesn't seem to me to 602 00:30:11,800 --> 00:30:14,400 Speaker 9: be that kind of reality. And that's a little bit. 603 00:30:14,440 --> 00:30:17,160 Speaker 9: I think what we're seeing in the banking this mini 604 00:30:17,200 --> 00:30:21,160 Speaker 9: crisis that's unfolding in the banking system, where ultimately the 605 00:30:21,400 --> 00:30:23,880 Speaker 9: big driver of that is the interest rate shock rights 606 00:30:24,160 --> 00:30:26,560 Speaker 9: and the interest rate shock comes somewhere when it comes 607 00:30:26,560 --> 00:30:29,360 Speaker 9: from this unprecedented surge of inflation, which is quite unlike 608 00:30:29,400 --> 00:30:32,840 Speaker 9: any inflation we've seen before, and follows immediately out of 609 00:30:32,880 --> 00:30:35,760 Speaker 9: the COVID shock, which ditto is also quite unlike anything 610 00:30:35,800 --> 00:30:38,400 Speaker 9: we've seen before. So I think we're in this very 611 00:30:38,520 --> 00:30:41,360 Speaker 9: broken play a world of a series of not just 612 00:30:41,480 --> 00:30:44,760 Speaker 9: serious but quite unique and rather unprecedented disruptions. 613 00:30:44,800 --> 00:30:47,320 Speaker 4: Well, and Adam, you say that one of the responses 614 00:30:47,360 --> 00:30:50,360 Speaker 4: to it has been basically bailout and the sort of 615 00:30:50,400 --> 00:30:53,960 Speaker 4: moral hazard of not allowing failure, which you've seen in 616 00:30:54,000 --> 00:30:56,880 Speaker 4: some of the banking institutions in a prior life. We're 617 00:30:57,080 --> 00:30:59,520 Speaker 4: being considered too big to fail or systemic or any 618 00:30:59,520 --> 00:31:02,560 Speaker 4: of these names. So what does that do in terms 619 00:31:02,680 --> 00:31:04,720 Speaker 4: of the zombies. I know that Tom's been talking a 620 00:31:04,760 --> 00:31:06,480 Speaker 4: lot about the zombie roll ups. Do you think that 621 00:31:06,520 --> 00:31:09,080 Speaker 4: we end up with a host of zombies or zombie 622 00:31:09,160 --> 00:31:11,320 Speaker 4: assets that kind of are allowed to persist in a 623 00:31:11,440 --> 00:31:14,280 Speaker 4: sort of inefficient manner for a longer period of time. 624 00:31:15,080 --> 00:31:18,080 Speaker 9: I think we clearly need new forms of discipline, We 625 00:31:18,120 --> 00:31:20,560 Speaker 9: need new forms of workout. And if you look in 626 00:31:20,600 --> 00:31:23,840 Speaker 9: the legal space, if you actually look in the mechanics 627 00:31:23,840 --> 00:31:27,440 Speaker 9: of bankruptcy restructuring in the United States and indeed across 628 00:31:27,520 --> 00:31:31,640 Speaker 9: the world, lawyers and corporate financial officers are very actively 629 00:31:31,680 --> 00:31:34,600 Speaker 9: engaged in that process of trying to figure out new 630 00:31:34,640 --> 00:31:38,720 Speaker 9: forms of discipline which aren't simply the old style Darwinian 631 00:31:38,800 --> 00:31:43,440 Speaker 9: process of free fall bankruptcy, which is increasingly the exception. Right, 632 00:31:43,480 --> 00:31:46,000 Speaker 9: there are forms of discipline which don't have to consist 633 00:31:46,160 --> 00:31:50,240 Speaker 9: in systemically dangerous bank failure, which is the sort of 634 00:31:50,240 --> 00:31:53,400 Speaker 9: type that we have been at risk of. But certainly, Lisi, 635 00:31:53,440 --> 00:31:55,840 Speaker 9: you're right, we need to be thinking very hard about 636 00:31:55,880 --> 00:31:59,600 Speaker 9: how we adjust and how we find new forms of 637 00:32:00,400 --> 00:32:04,920 Speaker 9: yes discipline selection, if you like, in Darwinian terms, to 638 00:32:04,920 --> 00:32:08,560 Speaker 9: to avoid a process of ever greater zombification. 639 00:32:08,960 --> 00:32:11,480 Speaker 4: This morning this weekend, when I was reading about the 640 00:32:12,040 --> 00:32:14,160 Speaker 4: regional banks and sort of where we are and the 641 00:32:14,200 --> 00:32:16,760 Speaker 4: amount of lending that they account for and the amount 642 00:32:16,760 --> 00:32:19,680 Speaker 4: of a real estate commercial real estate in particular that 643 00:32:19,720 --> 00:32:23,800 Speaker 4: they lend to, I wondered, is this model being challenged. 644 00:32:24,000 --> 00:32:26,800 Speaker 4: Is the private sector, private equity, private debts, some of 645 00:32:26,840 --> 00:32:31,120 Speaker 4: these financing companies taking over a greater share of the 646 00:32:31,160 --> 00:32:34,440 Speaker 4: business that regional banks used to do and really render 647 00:32:34,480 --> 00:32:35,480 Speaker 4: them less necessary. 648 00:32:36,600 --> 00:32:38,960 Speaker 9: I think it's actually, I would say, rather the reverse, 649 00:32:39,000 --> 00:32:41,520 Speaker 9: a very healthy reminder just of the actual structure of 650 00:32:41,560 --> 00:32:45,400 Speaker 9: American society and American business, which, as Matt Williams was saying, 651 00:32:45,480 --> 00:32:49,400 Speaker 9: is firmly and solidly routed not in the very large businesses, 652 00:32:49,920 --> 00:32:53,720 Speaker 9: but in a deep undergrowth of small and medium sized enterprise. 653 00:32:54,520 --> 00:32:57,200 Speaker 9: That's where a huge part of the job creation goes on. 654 00:32:57,360 --> 00:33:00,360 Speaker 9: And the bank ecosystem that the United States have is 655 00:33:00,800 --> 00:33:05,000 Speaker 9: internationally unusual. America has a lot of banks, But what 656 00:33:05,120 --> 00:33:06,880 Speaker 9: I do think we need to be taken care of 657 00:33:07,000 --> 00:33:10,000 Speaker 9: is exactly as you say, the huge shifts which are 658 00:33:10,040 --> 00:33:13,239 Speaker 9: going on and in terms of risk going forward, in 659 00:33:13,280 --> 00:33:16,480 Speaker 9: a way, I'm more worried about that new private equity 660 00:33:17,440 --> 00:33:21,880 Speaker 9: zone of very untransparent finance, trillions of dollars worth of 661 00:33:21,920 --> 00:33:24,520 Speaker 9: it in the SA leverage loan market, then I am 662 00:33:24,560 --> 00:33:27,720 Speaker 9: about the FDIC regulated small than medium sized banks, which, 663 00:33:27,800 --> 00:33:30,840 Speaker 9: on the whole, when they're not terribly managed like Silicon 664 00:33:30,920 --> 00:33:33,800 Speaker 9: Valley Bank was or First Republic, are a crucial part 665 00:33:33,800 --> 00:33:34,840 Speaker 9: of the American economy. 666 00:33:34,880 --> 00:33:37,720 Speaker 1: Adam, you straut of both sides of this with your academics. 667 00:33:37,720 --> 00:33:40,720 Speaker 1: The book Folks Is shut Down, How COVID shook the 668 00:33:40,760 --> 00:33:44,720 Speaker 1: world's economy, Adam TuS cancer. Enough about this effort from 669 00:33:44,960 --> 00:33:47,840 Speaker 1: I'm going to call it eighteen months ago, and Adam, 670 00:33:48,080 --> 00:33:51,160 Speaker 1: I want you to address the polarities in our politics 671 00:33:51,560 --> 00:33:55,840 Speaker 1: with the too small to succeed. I'm absolutely fascinated by 672 00:33:55,880 --> 00:33:59,440 Speaker 1: the focus of an America that is succeeding like Apple 673 00:33:59,520 --> 00:34:03,560 Speaker 1: with an apptless five trunch bond offering this morning. That's 674 00:34:03,600 --> 00:34:07,840 Speaker 1: all you know, Bloomberg surveillance Babbel. There's a huge body 675 00:34:07,880 --> 00:34:12,359 Speaker 1: of America that feels they're too small to succeed. Where 676 00:34:12,400 --> 00:34:13,880 Speaker 1: are they in a number of years. 677 00:34:14,760 --> 00:34:16,440 Speaker 9: This, I think has got to be the big worry. 678 00:34:16,440 --> 00:34:19,960 Speaker 9: I think we're seeing the bifurcation or maybe even a 679 00:34:19,960 --> 00:34:22,279 Speaker 9: three way separation of the US economy right now. There 680 00:34:22,320 --> 00:34:24,880 Speaker 9: are big slices of it which are continuing to thrive. 681 00:34:24,960 --> 00:34:28,759 Speaker 9: Think of the innovative energy space, the Chips Act, the 682 00:34:28,880 --> 00:34:31,400 Speaker 9: kind of money that's pouring into a genuine revival in 683 00:34:31,440 --> 00:34:35,000 Speaker 9: manufacturing investment. But those are big players. And what I 684 00:34:35,000 --> 00:34:37,240 Speaker 9: think we have to worry about is the credit crunch, 685 00:34:37,280 --> 00:34:39,440 Speaker 9: which looks as though it's beginning to unfold. If you 686 00:34:39,440 --> 00:34:43,040 Speaker 9: look at bankruptcies amongst smaller businesses, those numbers are beginning 687 00:34:43,080 --> 00:34:46,000 Speaker 9: to spike that that well as it will make that divide, 688 00:34:46,080 --> 00:34:50,120 Speaker 9: dig that ditch ever ever deeper. And that's ultimately, I think, 689 00:34:50,160 --> 00:34:53,840 Speaker 9: what is then reflected as it should be in democratic politics, 690 00:34:53,840 --> 00:34:57,640 Speaker 9: which ultimately in distorted ways for sure, but nevertheless does 691 00:34:57,719 --> 00:35:02,239 Speaker 9: reflect the broad tidal shifts in American society. And at 692 00:35:02,239 --> 00:35:05,640 Speaker 9: this moment we are think beginning to see the point 693 00:35:05,719 --> 00:35:09,279 Speaker 9: at which the extraordinary labor market story, which is after all, 694 00:35:09,280 --> 00:35:11,920 Speaker 9: the huge success of the recovery from COVID and America's 695 00:35:11,960 --> 00:35:15,520 Speaker 9: never seen unemployment numbers like this could be tipping into 696 00:35:15,560 --> 00:35:17,759 Speaker 9: something rather different, which would be a sort of two 697 00:35:17,840 --> 00:35:21,160 Speaker 9: speed recession or two types of landing. You know, we've 698 00:35:21,160 --> 00:35:23,480 Speaker 9: talked a lot about hard landings and soft landings and 699 00:35:23,480 --> 00:35:26,320 Speaker 9: low landings. What if one bit of the plane lands 700 00:35:26,400 --> 00:35:29,240 Speaker 9: quite hard on the other bit, as it were, sows away. 701 00:35:29,520 --> 00:35:30,520 Speaker 3: Well, just quickly. 702 00:35:30,560 --> 00:35:33,759 Speaker 4: Then you mentioned that you are concerned that there's an 703 00:35:33,760 --> 00:35:37,560 Speaker 4: increasing role of private capital away from some of these 704 00:35:37,560 --> 00:35:40,840 Speaker 4: smaller banks that is playing a part in what you 705 00:35:40,920 --> 00:35:43,400 Speaker 4: see as sort of this bifurcation that's developing. 706 00:35:44,000 --> 00:35:45,520 Speaker 3: Can you explain can you elaborate on that? 707 00:35:46,320 --> 00:35:46,480 Speaker 7: Well? 708 00:35:46,480 --> 00:35:48,239 Speaker 9: That I think would be a third element. This is 709 00:35:48,280 --> 00:35:50,600 Speaker 9: where the story gets really complicated, because I think the 710 00:35:50,640 --> 00:35:53,720 Speaker 9: credit squeeze is going to run through the stressed balance 711 00:35:53,719 --> 00:35:56,520 Speaker 9: sheets of smaller banks. The bit which I think is 712 00:35:56,680 --> 00:35:59,080 Speaker 9: riskiest in a sense, not risky the way that a 713 00:35:59,239 --> 00:36:01,279 Speaker 9: you know, city group getting to into trouble in two 714 00:36:01,280 --> 00:36:03,359 Speaker 9: thousand and eight or Aleman in two thousand and eight 715 00:36:03,400 --> 00:36:06,719 Speaker 9: is risk be it. Nevertheless, high risk is precisely the 716 00:36:06,760 --> 00:36:09,959 Speaker 9: space in between the high yield segment. These are big 717 00:36:10,120 --> 00:36:13,439 Speaker 9: players in that segment. We're not talking about small businesses here, 718 00:36:13,760 --> 00:36:17,200 Speaker 9: but They are very untransparently linked at this point, and 719 00:36:17,280 --> 00:36:19,920 Speaker 9: it's not by accident that in bankruptcy in the United 720 00:36:19,960 --> 00:36:25,279 Speaker 9: States today, the private equity owned firms are absolutely dominating 721 00:36:25,880 --> 00:36:30,239 Speaker 9: the corporate if you like, restructuring and crisis market. That's 722 00:36:30,280 --> 00:36:32,760 Speaker 9: where this sort of capital goes to play. The returns 723 00:36:32,760 --> 00:36:35,719 Speaker 9: are outsized if you can get in, and the privileged 724 00:36:35,719 --> 00:36:38,440 Speaker 9: elite that can play in this market earns those returns. 725 00:36:38,640 --> 00:36:40,760 Speaker 9: The question we're going to face now is what happens 726 00:36:40,760 --> 00:36:43,319 Speaker 9: when the risks come home to roost and where the 727 00:36:43,360 --> 00:36:45,719 Speaker 9: safety nets are and whether they're even appropriate to have 728 00:36:45,800 --> 00:36:47,640 Speaker 9: safety nets for this kind of actor. 729 00:36:47,440 --> 00:36:50,800 Speaker 1: And the new financialization as we move into the decade. 730 00:36:50,840 --> 00:36:54,160 Speaker 1: Adam twos thank you so much with Columbia University. Subscribe 731 00:36:54,200 --> 00:36:58,000 Speaker 1: to the Bloomberg Surveillance podcast on Apple, Spotify, and anywhere 732 00:36:58,000 --> 00:37:02,400 Speaker 1: else you get your podcasts. Listen live every weekday starting 733 00:37:02,400 --> 00:37:06,960 Speaker 1: at seven am Eastern. I'm Bloomberg dot Com, the iHeartRadio app, 734 00:37:07,320 --> 00:37:10,880 Speaker 1: tune In, and the Bloomberg Business app. You can watch 735 00:37:11,040 --> 00:37:15,320 Speaker 1: us live on Bloomberg Television and always I'm the Bloomberg Terminal. 736 00:37:15,719 --> 00:37:19,920 Speaker 1: Thanks for listening. I'm Tom Keen, and this is Bloomberg